1. What do monetarists think are the short-term effects and the long-term effect
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Question
1. What do monetarists think are the short-term effects and the long-term effects of using discretionary monetary policy to smooth out economic fluctuations caused by the business cycle? What is their advice for controlling the money supply?2. What is meant by stagflation? What economic circumstances might lead to a period of stagflation? In terms of the AD/AS model and/or the Phillips curve model, explain what is necessary to end a period of stagflation.
3. What is the difference between the financial account and the current account? What does each show (the main categories) and how are the two accounts related?
4. Discuss the impact of several years of large federal government budget deficits & an increasing national debt on international trade: How are today’s interest rates, exchange rates, and the balance on goods and services affected by selling bonds to finance the federal government’s budget deficits?
5. If the federal government was to begin running a budget surplus and paying down the national debt, how would exchange rates, interest rates and the balance on goods and services be affected by repayment of the national debt?
Explanation / Answer
2.In economics, stagflation is a situation in which the inflation rate is high and the economic growth rate slows down and unemployment remains steadily high. It raises a dilemma for economic policy since actions designed to lower inflation or reduce unemployment may actually worsen economic growth. The portmanteau stagflation is generally attributed to British politician Iain Macleod, who coined the phrase in his speech to Parliament in 1965.[1][2][3] [4] The concept is notable because, in the version of Keynesian macroeconomic theory which was dominant between the end of WWII and the late-1970s, inflation and recession were regarded as mutually exclusive, the relationship between the two being described by the Phillips curve. Stagflation is also notable because it has generally proven to be difficult and, in human terms as well as budget deficits, very costly to eradicate once it starts.
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