Macroeconomics ch 12 Flashcards
Monetary policy is conducted by
The Fed
If nominal GDP is $24,000 billion and the money supply is $20,000 billion, the velocity of money is
1.2
The velocity of money is equal to
Nominal GDP divided by the money supply
According to classical monetary theory
The velocity of money is constant
If the money supply increases by 10%, Real GDP is constant, and velocity is constant, the price level mustL
Increase by 10%
If the money supply increases by 10%, Real GDP increases by 3%, and velocity decreases by 4%, the price level must
Increase by about about 3%
A difference between monetarism and classical theory is
Monetarism holds that AD affects Real GDP in the short run
According to the Keynesian monetary transmission mechanism
An increase in investment leads to an increase in Total Expenditures
The Keynesian monetary transmission mechanism
Is indirect, may fail because investment may be interest-insensitive, and may fail because of the liquidity trap
If investors are insensitive to a decrease in interest rates
Expansionary monetary policy may have no effect on investment and expansionary monetary policy may have no effect on Real GDP
The liquidity trap
Means that interest rates will only fall so low and may cause expansionary monetary policy to have no effect on interest rates
Expansionary monetary policy
Means a decrease in the target for the federal funds rate and according to the Keynesian theory, would cause interest rates to decrease
Contractionary monetary policy
Means a decrease in the target for the federal funds rate and according to the Keynesian theory, would cause interest rates to decrease
Which of the following is true
Monetarists are generally opposed to activist policies
A monetary rule
would link money supply growth to Real GDP growth
When the Fed wants to make a change in monetary policy
NOT
it must first obtain the approval of the President and the proposed change must be approved by a majority of the Senate
The primary source of income for the Fed is
interest on its holdings of U.S. government securities
Financial Intermediation
Is the primary function of banks today and allows savers to reduce their risk of loss
Between 1929 and 1932, real investment spending
decreased by 83%
The high unemployment associated with the Great Depression lasted for
twelve years
The New Deal policies beginning in 1933
according to classical economists, hobbled the economic recovery
According to Keynesian economists, the Great Depression
Was ended by the expansionary fiscal and monetary policy associated with World War 2
According to classical economists
NOT
the Great depression was caused by the inherent instability of a market economy and the great depression could have been quickly ended with higher tariff rates
Alan Greenpan’s tenure as Chairman of the Federal Reserve Board was maked by:
A remarkable run of economic stability and low inflation
