Macroeconomics Chapter 37 – Flashcards
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Rational expectations theory assumes that:
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-people behave rationally and that all product and resource prices are flexible both upward and downward
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The equation underlying the mainstream view of macroeconomics is:
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-C (sub a) + I (sub g) + X (sub n) + G = GDP
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According to monetarists:
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-changes in the money supply are the primary cause of changes in the price level
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The basic equation of monetarism is:
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-MV=PQ
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Monetarists believe that:
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-velocity is relatively stable
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New classical economists:
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-hold that, left alone, the economy gravitates to its full-employment level of output
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Economist Milton Friedman is most closely associated with:
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-monetarism
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The velocity of money is the:
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-number of times per year the average dollar is spent on final goods and services
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Monetarists say:
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-a change in the money supply will change aggregate demand and therefore the nominal GDP
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The mainstream view is that macro instability is caused by:
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-significant changes in investment spending
