var imagesLarge = "kwmodsmacro3eupdates-numbered_fig-ch18_fig_1,kwmodsmacro3eupdates-numbered_fig-ch18_fig_3,kwmodsmacro3eupdates-numbered_fig-ch18_fig_5,,"; var imagesXlarge = "kwmodsmacro3eupdates-unnumbered_fig-ch18_un_01,kwmodsmacro3eupdates-numbered_fig-ch18_fig_2,kwmodsmacro3eupdates-numbered_fig-ch18_fig_4,,,,,"; var imagesXXlarge = "kwmodsmacro3eupdates-numbered_fig-ch18_fig_4,,,,,"; /*** CYU answers ***/ xBookUtils.showAnswers['kwmodsmacro3eupdates-cyu-18-1-1a'] = "
A classical economist would have said that although expansionary monetary policy would probably have some effect in the short run, the short run was unimportant. Instead, a classical economist would have stressed the long run, claiming expansionary monetary policy would result only in an increase in the aggregate price level without affecting aggregate output.
"; xBookUtils.showAnswers['kwmodsmacro3eupdates-cyu-18-2-1a'] = "The statement would seem very familiar to a Keynesian economist. According to Keynes, business confidence (which he called “animal spirits”) is mainly responsible for recessions. If business confidence is low, a Keynesian economist would think of this as a case for macroeconomic policy activism: that the government should use expansionary monetary and fiscal policy to help the economy recover.
"; xBookUtils.showAnswers['kwmodsmacro3eupdates-cyu-18-3-1a'] = "According to the velocity equation, M × V = P × Y, where M is the money supply, V the velocity of money, P the aggregate price level, and Y real GDP. If the Federal Reserve had pursued a monetary policy rule of constant money supply growth, the collapse in the velocity of money beginning in 2008 and visible in Figure 18-5 would have resulted in a dramatic decline in aggregate output.
"; xBookUtils.showAnswers['kwmodsmacro3eupdates-cyu-18-3-1b'] = "Although monetarists generally believe that monetary policy is not only effective but, in fact, more effective than fiscal policy, they also generally do not favor macroeconomic policy activism. Instead, monetarists generally advocate monetary policy rules, such as a low but constant rate of money supply growth. In addition, the natural rate hypothesis states that although monetary policy may be effective in helping return unemployment to its natural rate, it cannot permanently reduce unemployment below the natural rate.
"; xBookUtils.showAnswers['kwmodsmacro3eupdates-cyu-18-3-2a'] = "Fiscal policy is limited by time lags in recognizing economic problems, forming a response, passing legislation, and implementing the policies. Monetary policy is also limited by time lags, but these lags are not as severe as those for fiscal policy because the Federal Reserve tends to act more quickly than Congress. Attempts to reduce unemployment below the natural rate via both fiscal and monetary policy are limited by predictions of the natural rate hypothesis: that these attempts will result in accelerating inflation. Also, both fiscal and monetary policy are limited by concerns about the political business cycle: that they will be used to satisfy political ends and will end up destabilizing the economy.
"; xBookUtils.showAnswers['kwmodsmacro3eupdates-cyu-18-4-1a'] = "Rational expectations theorists would argue that only unexpected changes in the money supply would have any short-run effect on economic activity. They would also argue that expected changes in the money supply would affect only the aggregate price level, with no short-run effect on aggregate output. So such theorists would give credit to the Fed for limiting the severity of the Great Recession only if the Fed’s monetary policy had been more aggressive than individuals expected during this period.
"; xBookUtils.showAnswers['kwmodsmacro3eupdates-cyu-18-4-1b'] = "Real business cycle theorists would argue that the Fed’s policy had no effect on ending the Great Recession because they believe that fluctuations in aggregate output are caused largely by changes in total factor productivity.
"; xBookUtils.showAnswers['kwmodsmacro3eupdates-cyu-18-5-1a'] = "The liquidity trap brought on by the Great Recession greatly diminished the Great Moderation consensus because it considered monetary policy to be the main policy tool and monetary policy was now largely ineffective. The continuing disagreements over fiscal policy were now brought to the forefront as fiscal policy was used by policy makers to support their deeply depressed economies. A new consensus is unlikely to emerge anytime soon because results of the various policies have been unclear or disappointing: fiscal stimulus has failed to bring down unemployment substantially (although some say the stimulus was too small); conventional monetary policy does not work; and the Fed’s unconventional monetary policy seemed to have relatively little effect.
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