Keynes Economic Ideas
Monetarist Economic Ideas
Comparing Keynesians and Monetarists
Equations and Definitions
Miscellaneous
100
Keynes thought is was the responsibility of who to fix and regulate the economy?
The government or Congress
100
Who did the monetarists believe was in charge of monitoring the economy?
The Federal Reserve Board
100
Do Keynesians, or monetarists, believe that velocity is stable?
Monetarists believe velocity is stable
100
According to Keynes, what is a depression?
When households do not purchase enough so merchants fire workers and slash output.
100
Was Milton Friedman a monetarist or a Keynesian?
Monetarist
200
According to Keynes, aggregate demand must equal what to have a healthy economy?
Production
200
According to a simple monetarist model, the percent change in money supply should equal what?
The percent change in price
200
While monetarists focused on changes in monetary policy, Keynesians focused on changes in what?
Fiscal policy, government programs, etc
200
What is marginal propensity to consume (MPC)?
Change in consumption divided by change in income
200
Did Keynes disagree with the classical idea of waiting for things to improve in the long-run?
Yes he disagreed, he thought short-term policy changes were needed.
300
According to Keynes, why can deficits be allowed in a recession?
Because money must be spent to fix the economy.
300
What is the correct money supply? (Answer will not be a number)
Enough to buy all goods and services produced so full employment is reached without a rise in prices.
300
True or False: There has been a blending of Keynesian and monetarist economic thought in recent years.
True
300
What two factors make up aggregate demand?
Household spending and business spending
300
True or False: Keynes agreed with monetarist principles before he started developing his own ideas.
True
400
Why did Keynes deny the link between savings and investment?
Because households and businesses act and invest for different reasons?
400
Name one of the three ways to Federal Reserve Board can control money supply
1) By setting the percent of deposits that banks can lend 2) By lending funds to banks 3) By buying and selling government securities
400
How did Keynes negate the monetarist belief that velocity is stable?
By saying velocity would only be stable if 1) people do not hoard money and 2) businesses and households borrow from banks and THEN spend the money.
400
Define money supply
Money supply is the amount of currency held outside banks plus the amount of funds in checking accounts at commercial banks.
400
What job did Keynes have that led to him writing Economic Consequences of Peace?
Representative for the Treasury at Versailles
500
Why did Keynes disagree with Say's Law?
Because it didn't allow for unemployment, recession, etc OR because no cyclical producer-consumer flow really exists.
500
How did Milton Friedman negate the Keynesian multiplier?
By stating that government spending "crowds out" private spending, so the two can't occur simultaneously.
500
How did Milton Friedman negate Keynes' definition of money demand?
By saying it was stable because of LONG TERM factors. Keynes had only cited SHORT TERM factors in his definition.
500
How do you calculate a multiplier?
1/(1-MPC) OR 1/MPS
500
Why doesn't more money (bills printed) create prosperity?
It creates inflation OR Wealth is measured by what it can buy, not by numerals
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