Unit 4: Monetarist M.C.

Question 1

Bad gov’t policy

Answer 1

Great Depression gov’t put great in great depression

Question 1

Bad gov’t policy FED policy

m

Answer 1

m(imports)↓ -> i rates ↑ -> stock market collapse

Question 2

Gov’t policies will usually harm the economy because

Answer 2

a. Wrong policies to start with like great depression
b. Correct policy, it will take too long to work

Question 3

Modern market economy false trade off and truth

Answer 3

False trade off: An economy can give up some economic efficiency for more economic security

Truth: ↑Economic efficiency -> economy becomes more flexible
economic security comes from economic efficiency

Question 4

Monetary side of Monetarist- why demand for money?

Answer 4

transactional is most important

Question 5

Equation of Exchange

Answer 5

m⋅V= P⋅Q
“V” is predictable
“Q” can be at less than full production

Question 6

How does “M” change “Q” monetarist

Answer 6

Consumption effect
M↑ -> i rates↓ -> auto c.↑-> set off a possible multiplier effect -> GDP↑

Question 7

What happens if M is overused

Answer 7

Inflation
M↑↑ x V = P↑ x Q↑

Question 8

Types of monetarist

Answer 8

Orthodox- Monetary rule
- set growth rate of M to maintain the long run growth rate of Q

Pragmatist “fight a good fight”
- Must work to undo the bad policies from president and congress