Question

Which of the following is true?

1.Keynesians argue that the crowding-out effect is rather insignificant.

2.Keynesians advocate increasing the money supply during economic recessions but decreasing the money supply during economic expansions.

3.Monetarists argue that the crowding-out effect is rather large.

4.All of these.

5.Monetarists advocate increasing the money supply by a constant rate year after year.

Under the natural rate hypothesis, expansionary monetary and fiscal policies can at best produce a:

1.short-run change in the long-run Phillips curve.

2.permanent change in the unemployment rate.

3.short-run change in the unemployment rate.

4.permanent change in the inflation rate.

Answer 1

Question 1

The answer would be 4. all of these are true

When considering based on monetarists and Keynesian economics. Keynesian considers crowding out effect insignificant and prefers intervention of the government whereas Monetarists prefer vice versa in both situations. Moreover, Keynesian is in the view that the money supply needs to be regulated when experiencing economic fluctuations but Monetarists believe in a constant increase in money supply irrespective of economic fluctuations.

Question 2

The answer would be 2. Short-run change in the unemployment rate

The natural rate of hypothesis argues that the economy will self-correct to the natural rate of unemployment because the long-run Philips curve is vertical at the natural rate of unemployment. Hence, in the short run, the natural rate of hypothesis can make changes in short-run unemployment rate.