What Did Friedman and Phelps Argue About the Effectiveness of Monetary

question 189

Multiple Choice

What did Friedman and Phelps argue about the effectiveness of monetary policies?

• A) As long as people's inflation expectations were fixed, an increase in the money supply growth rate could not change output in the short or long run.
• B) If people's inflation expectations were fixed, in the short run, a decrease in the money supply growth rate could raise output and unemployment.
• C) When the money supply growth rate changed, people would eventually revise their inflation expectations so that any change in unemployment created by an increase in the money supply growth rate would be temporary.
• D) When the money supply growth rate changes, people slowly adjust their inflation expectations; therefore, the unemployment rate changes only in the long run but not in the short run.

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Definitions:

Overhead

All manufacturing costs that cannot be directly traced to a product. Overhead includes indirect labor and materials, plant depreciation, insurance and property taxes, plant management salaries, and so forth. See Indirect Cost Pool.

Direct Labor

The workforce involved in the hands-on manufacturing of goods or provision of services.

Variable Factory Overhead

Expenses that fluctuate with the level of production output, such as utilities or materials used in the manufacturing process.

Fixed Manufacturing Overhead

Consists of the costs that do not vary with the level of production, such as rent, property taxes, and salaries of permanent employees in a manufacturing facility.