In the 1960s, Despite the Successful Application of Expansionary Fiscal

question 84

Multiple Choice

In the 1960s, despite the successful application of expansionary fiscal policy in the United States, Milton Friedman argued that

• A) Keynesian supply-side policies were more effective at stimulating aggregate demand than expansionary fiscal policies.
• B) aggregate demand is affected by money and not by fiscal policy, and therefore only monetary policy should not be used to move the economy back to its potential output.
• C) aggregate demand is affected by money and not by fiscal policy, which is why policymakers should institute a policy of steady money growth and allow the economy to reach full employment through a process of self-correction.
• D) fiscal policy must be combined with monetary policy to move the economy back to its potential output, without increasing inflationary pressure.

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Definitions:

GICs

In Canada, Guaranteed Investment Certificates represent an investment option guaranteeing a fixed return rate over a certain time frame.

Annually

Happening annually or pertaining to a timeframe of one year.

Effective Interest Rate

The actual interest rate that a borrower pays or earns on a loan or investment, taking into account the effect of compounding.

Compounded Options

A financial derivative instrument that contains an option that itself has a feature making its payoff at least partially dependent on the future level of interest rates.