Question

The economy is under inflationary pressure. The head of the President's Council of Economic Advisers is...

The economy is under inflationary pressure. The head of the President's Council of Economic Advisers is a staunch Keynesian. What will this Keynesian recommend or not recommend? Explain. Prior to the 1930s, classical economics was the predominant theory about the behavior of the aggregate price level, aggregate output, and the appropriate role of monetary policy. Describe how classical economists believed the economy would be affected by an increase in the money supply.

Prior to the 1930s, classical economics was the predominant theory about the behavior of the aggregate price level, aggregate output, and the appropriate role of monetary policy. Describe how classical economists believed the economy would be affected by an increase in the money supply.

Homework Answers

Answer #1

Keynes would adopt a contractionary fiscal policy means that there will be a rise in the interest rates to reduce the inflationary pressure.The higher interest rate would reduce the consumption expenditure by the people as the bank will increase the rates for lending.

Prior to 1930's, an increase in the money supply would both increase the price level as well as the aggregate output economy.Since the economy is already under inflationary pressure, an increase in the money supply might worsen the situation as unemployment level might fall(Okun's law).

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1. There is uncertainty about the precise level of the natural rate of unemployment. True False...
1. There is uncertainty about the precise level of the natural rate of unemployment. True False 2. In the Keynesian view, a leftward shift in Aggregate Demand does NOT lead to falling prices since the short run Aggregate Supply curve is vertical. True False 3. Supply Side Economics is the idea that increasing tax rates will cause people to work more and produce more, to maintain a constant real income, increasing aggregate output in the economy. True False 4. Bank...
3. Answer the following by looking at the article: Macroeconomics: Schools Of Thought By Stephen D....
3. Answer the following by looking at the article: Macroeconomics: Schools Of Thought By Stephen D. Simpson, CFA The field of macroeconomics is organized into many different schools of thought, with differing views on how the markets and their participants operate. Classical Classical economists hold that prices, wages and rates are flexible and markets always clear. As there is no unemployment, growth depends upon the supply of production factors. (Other economists built on Smith's work to solidify classical economic theory....
During the late 70s and early 80s, the U.S. economy faced an inflationary period. The chairman...
During the late 70s and early 80s, the U.S. economy faced an inflationary period. The chairman of the Fed at that time, Paul Vocker, pursued a monetary policy to reduce inflation in the long run. The principal method used by the Federal Reserve to change the money supply is through open market operations. Which policy would accomplish the Fed's goal to reduce inflation (buy or sell bonds) in the long run? Use the Quantity Theory and Fisher Equation to explain...
Consider the following Keynesian (short-run) model along with the Classical (long-run) model of the economy. Labor...
Consider the following Keynesian (short-run) model along with the Classical (long-run) model of the economy. Labor Supply: Le = 11 Capital Supply: K=11 Production Function: Y-10K.3(Le).7 Depreciation Rate: &=.1 Consumption Function: C=12+.6Yd Investment Function: I= 25-50r Government Spending: G=20 Tax Collections: T=20 Money Demand Function: Ld= 2Y-200r Money Supply: M=360 Price Level: P=2 Find an expression for the IS curve and plot it. Find an expression for the LM curve and plot it. Find the short run equilibrium level of...
Can I have your opinion on this research and possible correction? The global economy and government’s...
Can I have your opinion on this research and possible correction? The global economy and government’s ability to control its country’s currency. Definition of terms Global economy is an economic interdependence established between the most influential countries that drives the worldwide economic environment. It is also the aggregate economic output, movement and influence of all countries. (My Accounting course). Currency is the medium of exchange for goods and services. In short, its money, in the form of paper or coins,...
42.   Macroeconomics deals mainly with: (a) the market behavior of individual industries and firms; (b) economics...
42.   Macroeconomics deals mainly with: (a) the market behavior of individual industries and firms; (b) economics from the perspective of an entire economy; (c) price theory; (d) none of the above. 43.   Over the last several decades, the share of national income accruing to labor has tended to: (a) trend downward relative to the share accruing to capital; (b) increase annually relative to capital’s share; (c) increase sharply despite periodic declines attributable to inflation; (d) remain constant. 44.   Fiscal policy...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT