Slides 8-9 Flashcards
Why did M1 surge in the Fall of 2008?
Bank Run
Why did M2 sure in the aftermath of the Lehman Bankruptcy?
Find Out
A money growth rule focuses only on the growth rate of money ___, ignoring ___.
Long-Run, Short-Term Fluctuations
The equation of exchange is ___, and the velocity of money is the number of times the ___.
MV=PY, number of times the average dollar is spent on final goods and services
Monetarists believe velocity is ___.
Stable or at least predictable
M1 growth and velocity changed drastically beginning the 1980s, without ___. The M2 growth rate trended up also, without ___.
Leading to increased inflation, (same again)
P=MV/Q is also
MV/Real GDP
Monetarists are those economists who believe that the velocity of money is ___.
Fairly constant or predictable
Activist rules allow for ___, and non-activist rules believe in ___. Monetarists believe in ___ rules.
Allow for changes in monetary policy in response to business cycle fluctuations, Non-activist: keeping monetary policy unchanged in response to business cycle. Non-activist
In a paper published by Friedman, he stated that in the long run, increased monetary growth ___ but has little or no effect on ___.
Increased, Output
Friedman’s solution was that if the Fed were required to increase the money supply at the same rate as real GDP increased, then ___ would disappear.
Inflation
Friedman questioned the ability of the central banks to effectively engage in ___; given the lags between adjustments and macro-activities, policymakers were not capable of appropriately timing policy changes.
Counter-cyclical policy
Milton favored ___, because he did not believe central bankers were wise enough to improve on outcomes.
Steady money growth
Keynes motives for holding money balances were: ___, ___, and ___.
Transactions, Precautionary, Speculative
Keyne’s transaction motive was that ___. His precautionary motive was ___, and his speculative motive was ___.
Transactions: the amount of desired money balances was a function of income, higher inc=more money Dx Precautionary: people prefer to have liquidity, higher uncertainty=greater Dx for precautionary balances; Speculative: people retain liquidity when interest rates are low, and buy bonds when interest rates are high.
