EBK MACROECONOMICS
10th Edition
ISBN: 9780134896571
Author: CROUSHORE
Publisher: VST
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Chapter 11, Problem 5RQ
To determine
To Explain: The ideology held by Keynesian economists on the neutrality of money and how it is different from that of the Classical economists.
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The use of monetary policy is highly debated among classical and Keynesian economists. Where do they agree and where do they disagree with respect to monetary policy?
Why do Keynesian economists believe increasing the money supply is a good idea? Use the equation of exchange in your answer.
State the main features of the monetary model. Use the model to analyse the impact of an expansionary monetary policy.
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- Which of the following is NOT an example of monetary policy to restrict aggregate demand? a)Raising interest rates b)Reducing money supply c)Rationing credit d)Increasing income taxarrow_forwardWhy do Keynesian economics believe increasing the money supply is a good idea? Use the equation of exchange in this answer.arrow_forwardHow is a monetary policy rule helpful for understanding U.S. monetary policy?arrow_forward
- In the AS/AD model, higher interest rates are produced by: Multiple Choice O O O O a steady-as-you-go monetary policy. a contractionary monetary policy. an expansionary monetary policy. an activist monetary policy.arrow_forwardThe monetarists/new classical economists argue that, "given that the economy is inherently stable,stabilisation is unnecessary and uncalled for". What is the Keynesians' counter argument to this?arrow_forwardWhy is it so difficult to "fine-tune" the American economy using discretionary macroeconomic policy? a) To be effective in stabilizing the economy, the impact of macroeconomic policy must be well timed, else the policy might instead destabilize the economy. b) Often it takes months for economists to recognize the macroeconomy's major shift in direction. c) Expansionary monetary policy depends on the willingness of banks to lend to people willing to borrow, and in a recession people may be reticent to borrow and banks to lend. d) In the American political system it is very difficult to pass any legislation quickly, and fiscal policy usually involves significant political trade-offs. e) All of the abovearrow_forward
- Suppose the target rate of unemployment is 5 percent but the actual rate of unemployment is 2 percent. Given this information, which of the following policies is the least appropriate according to the AS/AD model? A, contractionary monetary policy B. an increase in the value of the dollar to decrease exports C. an increase in interest rates from the central bank D. None of the available answers. E. expansionary monetary policyarrow_forwardAccording to the Keynesian model, if the Fed wanted to reduce inflationary pressures, which of the following combinations of policies should it pursue? Group of answer choices increase the reserve requirement, increase the discount rate, and sell government securities increase the reserve requirement, increase the discount rate, and buy government securities increase the reserve requirement, decrease the discount rate, and sell government securities decrease the reserve requirement, decrease the discount rate, and buy government securitiesarrow_forwardIn what situation is the use of Monetary Policy not effective? In all situations monetary policy is effective. When the economy experienced excessive economic growth When the economy experiences a very severe recession When the economy experiences stagflationarrow_forward
- If the economy has rational expectations and the model is sticky price model. Could you explain why the following statement true in macroeconomics?arrow_forwardHow do the assets—money and bonds—differ in Keynes’s liquidity preference theory?arrow_forwardNow that you have learned about the Keynesian perspective, what do you think about it? In your post, be sure to describe the Keynesian viewpoint and how they would use both fiscal and monetary policy to achieve their goals. Do you think Keynes was right? Why or why not?arrow_forward
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