Question

1. Which of the following is (or at least was) an assumption of monetarist theory?

A	prices or wages are sticky (inflexible);

B	money’s velocity is stable and predictable

C	technology (supply-side) shocks are the primary cause of business cycles

D	business cycles are caused by a mismatch in timing between savings, investment, and consumption

2. Which of the following is a component of Austrian Business Cycle theory?

A	prices or wages are sticky (inflexible);

B	money’s velocity is stable and predictable

C	technology (supply-side) shocks are the primary cause of business cycles

D	business cycles are caused by a mismatch in timing between savings, investment, and consumption

Answer 1

ANSWER 1 . A ) The assumption of monetary theory ---price or wages are sticky (inflexible ). Monetary theory focused on the macroeconomic effects of the supply of money and central banking. This theory is formulated by Miltion Friedman , it argues that excessive expansion of the money supply is inherently inflationary , and that monetary authorities should focus solely on maintaining price stability .

ANSWER 2 . D ) business cycles are caused by a mismatch in timing between saving , investment and consumption . The Austrian business cycle theory was developed by Austrian School economists Ludwig von Mises and Friedrich Hayek in 1974 . They believe that a sustained period of low interest rates and excessive credit creation result in a violatile and unstable imblance between saving , investment and consumption results the creation of business cycle .