Question

55. When compared with monetarist theory, Keynesian theory places greater emphasis on: (a) changes in supply of money as a determinant of GDP and inflation; (b) totally discounts the role of monetary policy in determining GDP and inflation; (c) fiscal policy as a determinant of money supply (d) changes in interest rates as a prerequisite to GDP growth and inflation.

56. Over time, the flattening and shifting inward of the traditional Phillips Curve suggests that: (a) the relationship between inflation and unemployment is stronger than ever; (b) a 1% change in the inflation is now associated with smaller changes than before in the unemployment rate; (c) every unemployment rate is now associated with a lower inflation rate than previously; (d) the U.S. now has an R* much higher than 1%.

Answer 1

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Question:

55). Answer:

(c) fiscal policy as a determinant of money supply

When compared with monetarist theory, Keynesian theory places greater emphasis on fiscal policy as a determinant of money supply. Keynesian theory places greater emphasis on fiscal policy and says that fiscal policy is work more effectively during the recession. Recession is cause of decrease AD and when government increase spending its increase income level that increase AD. Increasing AD increase output and price level.

56). Answer:

Over time, the flattening and shifting inward of the traditional Phillips Curve suggests that a 1% change in the inflation is now associated with smaller changes than before in the unemployment rate. A  flatter Phillips curve shows that economic activity has a smaller effect on inflation.

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