Question

1. By the late 1930s banks in the United States had built up substantial amounts of reserves in excess of the minimums they were required by law to hold. The Federal Reserve raised the required amounts in order to lock away the excess reserves. Milton Friedman regarded this as ______.
a. a prudent decision that prevented inflation
b. an imprudent decision that forced banks to cut lending, thus contributing to a recession
c. an imprudent decision that forced banks to lend quickly before the law went into effect, thus producing the inflation that had been feared
d. neither a prudent nor imprudent decision because it had no effect on the banks

2.  Milton Friedman argued that a determined attempt to keep the rate of unemployment below the natural rate would produce _____, a claim that was _____ with the course of events in the 1970s.
a. accelerating inflation, consistent
b. decelerating inflation, consistent
c. accelerating inflation, inconsistent
d. decelerating inflation, inconsistent

Answer 1

Option b is correct
I.e.

b. an imprudent decision that forced banks to cut lending, thus contributing to a recession

Because

The governors disagreed on many issues, because at the time and for decades thereafter, experts disagreed about the best course of action and even about the correct conceptual framework for determining optimal policy.

2.
Option c is correct

accelerating inflation, inconsistent

Because

Friedman's seminal contribution to economics came through his analysis of prevailing macroeconomic theories. During his time as a professor, macroeconomics was dominated by Keynesian Economic Theory. This school of economic thought, pioneered by British economist John Maynard Keynes, holds that fiscal policy

answered by: anonymous