Mainstream
Monetarist
Self-Correction
Rules v. Discretion
Random
100
The major focus of mainstream theory
What are demand shocks?
100
The central focus of monetarism
What is the money supply?
100
Causes business-cycles by creating unanticipated price level changes
What are price level surprises?
100
Sets policies the Fed must follow so monetary policy is not discretionary
What is monetary rule?
100
The theory that states business cycles are caused by AS shifts, not AD shifts
What is Real-Business-Cycle Theory?
200
People are logical and make informed decisions
What is Rational Expectation Theory?
200
MV = PQ
What is the equation of exchange?
200
Believes wages adjust instantly when price-level changes are anticipated
What is rational expectation theory?
200
Would require the Fed to announce a goal for the level of inflation
What is inflation targeting?
200
GDP/M
What is V?
300
Wages above market level can increase productivity
What is Efficiency Wage Theory?
300
Assumed stable, or predictable
What is velocity of money?
300
Believes the economy diverges from full-employment, but self-corrects
What is new classical economics?
300
Legislature which would government debt or surplus
What is balanced budget?
300
When firms and households have conflicting expectations
What is coordination failure?
400
People who retain their jobs during recessions
What are insiders?
400
The essential cause of instability
What are government interference or monetary policy?
400
Prevents self-correction in mainstream economics
What is downward price inflexibility?
400
A method of economic adjustment often abused by policiticans
What is fiscal policy?
400
Money supply as in the equation of exchange
What is M1?
500
The major cause of macro instability
What is the instability of investment spending?
500
The basic assumption made in monetarist theory
What are competitive markets?
500
The unavoidable result of self-correction
What is inflation or deflation?
500
The negative result of "too good" expectations under monetary rule
What is demand-pull inflation?
500
A possible, but unlikely cause of instability in the mainstream view
What are AS shocks?
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