Chapter 36: Current Issues in Macro Theory and Policy

(1) focuses on the money supply, (2) holds that markets are highly competitive, and (3) says that a competitive market system gives the economy a high degree of macroeconomic stability

Supply of monetary times the velocity of money equals the price level times the physical volume of all goods and services produced

________ in investment can produce demand- pull inflation.

Business fluctuations result from significant changes in technology and resource availability

Occur when people fail to reach a mutually beneficial equilibrium because they lack a way to coordinate their actions

There is a(n) ________ between the money supply and nominal GDP.

Businesses, consumers, and workers expect changes in policies or circumstances to have certain effects on the economy and, in pursuing their own self-interest, take actions to make sure those changes affect them as little as possible

If a(n) ________ is expected, both firms and households will cut back their investment spending.

________ in the equation of exchange is relatively stable.

When the economy occasionally diverges from its full-employment output, internal mechanisms within the economy will automatically move it back to that output

Unanticipated changes in the price level

A wage that minimizes the firm’s labor cost per unit of output

Outsiders may not be able to underbid existing wages because employers may view the nonwage cost of hiring them to be prohibitive

________ believe that shifts in short- run aggregate supply may not occur for 2 or 3 years or even longer.

________ argue that a monetary rule would tie increases in the money supply to the typical rightward shift of long- run aggregate supply.

________ are particularly strong in their opposition to expansionary fiscal policy.

The prevailing macroeconomic perspective of the majority of economists

(1) focuses on the money supply, (2) holds that markets are highly competitive, and (3) says that a competitive market system gives the economy a high degree of macroeconomic stability

Supply of monetary times the velocity of money equals the price level times the physical volume of all goods and services produced

Business fluctuations result from significant changes in technology and resource availability

Occur when people fail to reach a mutually beneficial equilibrium because they lack a way to coordinate their actions

Businesses, consumers, and workers expect changes in policies or circumstances to have certain effects on the economy and, in pursuing their own self-interest, take actions to make sure those changes affect them as little as possible

When the economy occasionally diverges from its full-employment output, internal mechanisms within the economy will automatically move it back to that output

Unanticipated changes in the price level

A wage that minimizes the firms labor cost per unit of output

Outsiders may not be able to underbid existing wages because employers may view the nonwage cost of hiring them to be prohibitive

The Fed would be required to announce a targeted band of inflation rates for some future period

The Fed would be required to announce a targeted band of inflation rates for some future period