Keynesians Argued That Monetary Policy Would NOT Be Effective If

question 148

Multiple Choice

Keynesians argued that monetary policy would NOT be effective if:

• A) there was a liquidity trap.
• B) the Fed was independent of political pressure.
• C) other countries did not follow monetary policy similar to that of the United States.
• D) no one bought bonds when the Fed conducted open-market operations.

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Definitions:

Monetarists

Economists of the view that changes in the money supply significantly affect the national output in the short term and have major impacts on the price level over extended durations.

MV = GDP

An equation representing the relationship between the money supply (MV) and gross domestic product (GDP), highlighting the velocity of money in economic activities.

PQ = GDP

An equation stating that the price level (P) times the quantity of output (Q) is equal to the Gross Domestic Product.

Equation of Exchange

A formula representing the relationship between the money supply, its velocity, the price level, and the volume of transactions in an economy.