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:

Air Pollution

The presence of substances in the atmosphere that are harmful to human health, the environment or cause climate change.

Public Good

Goods that are non-excludable and non-rivalrous, meaning they can be used by many without diminishing the supply.

Clean Air

The state of the atmosphere when it is free from pollutants and substances harmful to living organisms and the environment.

Imperfect Information

A situation where all parties in a transaction do not have equal access to all relevant information.