Which of the Following Statements About the Monetarist View of the Macroeconomy

question 63

Multiple Choice

Which of the following statements about the monetarist view of the macroeconomy is incorrect?

• A)Left alone, the economy rarely operates at full employment.
• B)All recessions result from inappropriate monetary policy.
• C)The money wage rate is sticky.
• D)Taxes should be kept low to avoid disincentive effects that decrease potential GDP.
• E)Provided that the quantity of money is kept on a steady growth path, no active stabilization is needed to offset changes in aggregate demand.

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Definitions:

Implicit Cost

The monetary income a firm sacrifices when it uses a resource it owns rather than supplying the resource in the market; equal to what the resource could have earned in the best-paying alternative employment; includes a normal profit.

Law of Diminishing Returns

The economic principle stating that as one input variable is increased, there is a point at which the marginal gain in output begins to decrease, holding all other inputs constant.

Diseconomies of Scale

Diseconomies of scale occur when a firm's costs per unit increase as the scale of its output increases, often due to inefficiencies that arise from managing a larger organization.

Average Fixed Costs

Costs that do not change with the level of output and are spread over the units of output, thus decreasing per unit as production increases.