Question 1

In the Monetarist view, the aggregate demand curve will be unstable when __________ is __________.

Accepted Answer

In the Monetarist view, fluctuations in the money supply can cause instability in the aggregate demand curve. If the money supply varies, it can lead to changes in interest rates and borrowing costs, which can impact consumer spending and investment. Therefore, D is the correct choice.

Question 2

The impact of monetary policy on the exchange rate is emphasized by

Accepted Answer

The answer of The impact of monetary policy on the...

Question 3

A relatively steep aggregate demand curve indicates that

Accepted Answer

A relatively steep aggregate demand curve indicates that a small change in the price level leads to a large change in the level of aggregate expenditures. This implies that spending is sensitive to changes in the price level, which is reflected in the steepness of the curve.

Question 4

The assumption that people may choose to hold excess money balances when there is an increase in the money supply is emphasized by

Accepted Answer

Keynesians emphasize the idea that people may choose to hold excess money balances when there is an increase in the money supply, as part of their broader view that money demand can be influenced by factors such as interest rates and income levels, not just the price level.

Question 5

When the aggregate demand curve shifts to the left, real GDP falls unless the aggregate supply curve is

Accepted Answer

If the aggregate demand curve shifts to the left and the aggregate supply curve is upward-sloping, there will be a decrease in real GDP and an increase in the price level. However, if the aggregate supply curve is vertical, the decrease in aggregate demand will only lead to a decrease in the price level, with no effect on real GDP. If the aggregate supply curve is horizontal, the decrease in aggregate demand will lead to a decrease in the price level, but an increase in real GDP. Therefore, the only choice that ensures a decrease in real GDP when the aggregate demand curve shifts to the left is when the aggregate supply curve is vertical.

Question 6

When the aggregate demand curve shifts to the left against a vertical aggregate supply curve, the price level should __________ unless, as __________ argue, prices may have rigidities.

Accepted Answer

According to Keynesians, prices may have rigidities in the short run, which means that they do not adjust immediately to changes in aggregate demand. Therefore, if the aggregate demand curve shifts to the left against a vertical aggregate supply curve, output will decrease and prices will fall. Monetarists, on the other hand, argue that prices are flexible in the short run and that the economy will always return to the equilibrium level of output and prices.

Question 7

Keynesian picture the aggregate demand curve as rather __________, partly because interest rates may be __________ to changes in the real money supply.

Accepted Answer

Keynesian economists tend to view the aggregate demand curve as steep, meaning that changes in aggregate demand will result in relatively large changes in real GDP. This is partly because they believe that interest rates are relatively unresponsive to changes in the real money supply, which means that changes in monetary policy are less effective at influencing aggregate demand than changes in fiscal policy.

Question 8

Suppose a shift of aggregate demand pushes the economy "southwest" away from full employment in the aggregate demand and supply diagram. Monetarists would recommend returning to full employment by

Accepted Answer

The answer of Suppose a shift of aggregate demand pushes...

Question 9

Monetarists have argued that since velocity __________, this shows that shifts to the investment demand function must __________.

Accepted Answer

The answer of Monetarists have argued that since velocity __________,...

Question 10

In the Keynesian model, a short-run increase in investment spending will shift the aggregate

Accepted Answer

In the Keynesian model, an increase in investment spending will lead to an increase in aggregate demand. This is because increased investment spending leads to increased production and employment, which in turn lead to increased consumer spending. This shift in aggregate demand will shift the demand curve to the right. Therefore, the answer is D.

Question 11

According to the Monetarists, the money supply is a major factor determining

Accepted Answer

Monetarists believe that changes in the money supply have a direct impact on aggregate demand, as an increase in the money supply leads to an increase in spending, causing a shift in the aggregate demand curve. Conversely, a decrease in the money supply leads to a decrease in spending, causing a shift in the aggregate demand curve in the opposite direction.

Question 12

The impact of monetary policy on the cost of capital is emphasized by

Accepted Answer

The answer of The impact of monetary policy on the...

Question 13

From a Keynesian perspective, a short-run decrease in investment spending will shift the aggregate

Accepted Answer

In the short-run, a decrease in investment spending will reduce aggregate demand. According to Keynesian economics, in the short-run, the economy is demand-driven, and changes in aggregate demand can cause fluctuations in output and employment levels. As investment spending represents a component of aggregate demand, a decrease in investment spending will reduce overall spending in the economy, leading to a leftward shift in the aggregate demand curve.

Question 14

Which of the following is a key assumption leading to the Monetarist view that government deficits crowd out private investment?

Accepted Answer

The Monetarist view assumes that investment is sensitive to the interest rate, meaning that lower interest rates increase private investment and higher interest rates decrease private investment. Therefore, if the government runs deficits and borrows money, it increases demand for loanable funds and drives up interest rates, which in turn leads to a decrease in private investment.

Question 15

Monetarists tend to think that the aggregate demand curve is

Accepted Answer

Monetarists, following the theories of Milton Friedman, believe that the aggregate demand curve is relatively stable over time, emphasizing the role of monetary policy in controlling inflation and stabilizing the economy. They argue that changes in the money supply are the main drivers of economic fluctuations rather than changes in fiscal policy or investment spending.

Question 16

From the Monetarist perspective, the aggregate supply curve is

Accepted Answer

Monetarists, following Milton Friedman, believe that in the long run, the aggregate supply curve is vertical, indicating that the quantity of goods and services supplied is not affected by changes in the price level. This perspective emphasizes that changes in the money supply primarily affect prices rather than output.

Question 17

To Keynesians, a vertical aggregate supply curve

Accepted Answer

DA vertical aggregate supply curve, according to Keynesian economics, represents a situation where the economy is at full capacity, meaning that output cannot be increased by increasing demand. This scenario is considered to hold in the long run (choice C) because, in the short run, there are usually idle resources that can be utilized to increase production. Additionally, the vertical aggregate supply curve is encountered at the full-capacity output of the economy (choice D), indicating that the economy cannot produce beyond this point regardless of increases in demand.

Question 18

A Keynesian forecast of economic growth next year is likely to focus on

Accepted Answer

Keynesian economics emphasizes the importance of government intervention, particularly in the form of fiscal policy, in stimulating aggregate demand and promoting economic growth. Investment spending plans are a key component of aggregate demand, and therefore a Keynesian forecast of future economic growth is likely to focus on projections for investment spending.

Question 19

According to Monetarists, a direct substitution between cash balances and real goods results from a change in

Accepted Answer

Monetarists believe that changes in the money supply have a direct impact on the demand for goods and services. An increase in the money supply leads to an increase in the amount of cash available, which can be used to purchase goods and services. As a result, monetarists argue that changes in the money supply will directly affect the demand for real goods and services.

Question 20

A Classical aggregate supply curve is

Accepted Answer

In the classical model, the aggregate supply curve is vertical, indicating that the economy's output level is limited by the factors of production (land, labor, capital) and technology, which determine the potential output level in the long run. Therefore, changes in aggregate demand only impact the price level, not the output level.

Quiz 26: An Aggregate Supply and Demand Perspective on Money and Economic Stability

In the Monetarist view, the aggregate demand curve will be unstable when is .