3. Milton Friedman, a leading monetarist, believes the Fed should not manage the

Question

3. Milton Friedman, a leading monetarist, believes the Fed should not manage the money supply in a discretionary manner. Which of the following statements is NOT a reason for Friedman's belief?

Select one: a. The limitations of our knowledge make any discretionary policy very unpredictable. b. The past performance of the Fed has not given a strong indication that it has the ability to regulate the money supply in such a manner. c. Friedman advocates the rule of steady monetary growth. d. Discretionary monetary policy promotes confidence within the business community by providing a greater amount of stability to money and credit.

7. Keynesian economists (as opposed to monetarist economists) argue that

Select one: a. the economy will quickly return to equilibrium via natural forces. b. the government should use macro policy to keep the economy from getting too far from full employment equilibrium. c. monetary policy should be used according to strict rules. d. Keynesian economists argue all of these statements.

6. John Maynard Keynes did NOT accept the classical assumption that

Select one: a. the velocity of money is constant in the short run. b. full employment is the natural state of the economy. c. money balances are held only for transaction purposes. d. interest rates do not affect the quantity of money demanded. e. Keynes did not accept any of the above assumptions.

9. A tax cut policy

Select one: a. May be supported by a Keynesian if the economy is in a recession. b. May be supported by a supply-sider if the tax cut is generally followed by a cut in government expenditure. c. All of the above. d. None of the above.

5. While most economists believe that Keynes was correct when he placed primary focus on aggregate demand manipulation to solve the recessionary gap of the Great Depression, supply-siders are critical of this focus, claiming that

Select one: a. Keynesian economics can only be successful if interest rates are allowed to rise. b. Keynesian economics diverted attention away from important factors such as work effort, labor productivity, and incentives to save and invest. c. the Great Depression was caused by the stock market crash of 1929, not a decline in aggregate demand. d. greater control of the way in which stocks and bonds were traded would have brought the economy out of the Great Depression. e. the supply of goods and services should have been placed under the control of the government until the economy had time to adjust to the decline of aggregate demand

Explanation / Answer

3)b

7)d

6)b

9)c

5)a or e

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