Exam 15: The Debate Over Monetary and Fiscal Policy

The quantity theory of money builds on the equation of exchange.What specific assumptions are made that turn the equation of exchange from an accounting identity into an economic theory?

Critics of the Fed's unconventional policies in 2009 and 2010 argued that determining which financial institutions would be bailed out and which would be allowed to fail was a political decision that rightfully belonged to Congress.

Monetarists believe that the aggregate supply curve is relatively steep in the short and long runs.This means they expect

Economists observed the following growth rates in the fourth quarter of 1995: real GDP = 2.8 percent; M1 = 7.8 percent; GDP Deflator = 2.2 percent.Given this data,the growth of velocity was approximately

Which of the following is an example of unconventional monetary policy?

The "Taylor rule" for monetary policy provides the Fed with a

Which of the following is the formula for velocity?

Over long periods of time,M2 velocity has been relatively constant.

The Federal Reserve reduced the fed funds rate to the 0-0.25 percent range in 2008 in response to the Lehman Brother's catastrophe.

Which of the following was not a reason that the Federal Reserve took on additional risks associated with unconventional policy during the recession of 2007-2009?

When salaries are paid more frequently,the velocity of money speeds up because individuals hold more cash.

Which of the following was a reason that the Federal Reserve took on additional risks associated with unconventional policy during the recession of 2007-2009?

Once the federal funds rate is reduced to zero,conventional expansionary monetary policy is no longer an option.

If nominal GDP is $7,700 billion and M1 is $1,000 billion,then velocity is

The current debate about fiscal and monetary policy tends to focus on

According to Baumol and Blinder,the lag between the time a policy is implemented and the time it affects aggregate demand is

According to the monetarists,the velocity of money is

Advocates of stabilization policy prefer quick medicine for economic ills.This leads some observers to favor fiscal policy while others endorse monetary policy.Describe the positions of each side in the debate and what seems to be the current consensus.

Which of the following was an argument for using fiscal policy in situations like the Great Recession?

Define the following terms and explain their importance to the study of macroeconomics. a. the relationship between interest rates and velocity b. lags in stabilization policy c. rules versus discretion