Which of the Following Is True About Keynesians and Monetarists

question 104

Multiple Choice

Which of the following is true about Keynesians and monetarists with regards to policy intervention?

• A) Keynesians favor the use of fiscal policy to bring the economy back to its potential output while monetarists favor the use of monetary policy to bring the economy back to its potential output.
• B) Keynesians favor active policy intervention to bring the economy back to its potential output while monetarists argue that the uncertain nature of lags renders policy intervention
• Destabilizing.
• C) Keynesians argue that with its shorter and more predictable policy lags, fiscal policy is more effective that monetary policy in bringing the economy back to its potential output, while
• Monetarists argue that monetary policy lags are much shorter and more predictable than fiscal policy lags and therefore more effective in bringing the economy back to its potential
• Output.
• D) While both schools favor the use of intervention policies, Keynesians argue that such policies are more effective at eliminating recessionary gaps while Monetarists contend that they are
• More effective at eliminating inflationary gaps.

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Definitions:

Inverted Production Function

A concept where inputs and outputs in a production process are reversed in analysis, possibly examining the relationship of output levels to required inputs.

Total Product

The overall quantity of output that a firm produces, usually within a given period of time.

Marginal Product

The rise in output due to an extra unit of input.

Marginal Product

The additional output that can be produced by adding one more unit of a specific input, keeping all other inputs constant.