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:

Cash Payback Period

The duration required for an investment to generate cash flows sufficient to recover the initial cost of the investment.

Salvage Value

The estimated residual value of an asset after its useful life has ended and it can no longer be used for productive purposes.

Net Cash Inflows

The difference between all cash receipts and all cash payments within a particular period, reflecting the net increase in cash available.

Straight-Line

A depreciation method that allocates an equal amount of the depreciable cost of an asset to each accounting period of its useful life.