Is it a necessary condition that velocity is constant and that real output growth is assumed to be zero to have Milton Friedman's assertion that inflation is a monetary phenomenon be true?
What will be an ideal response?
Not really. Friedman's assertion would hold with the long-run trend rate of real growth and the assumption that over the long-run velocity is constant or even predictable. For example, if we assume that real output grows at a long-run rate of 3 percent and that velocity grows at 1 percent over the long run, then any growth rate of money that exceeds 2 percent will result in inflation in the long run. In this case, it is still an excessive growth rate of money that causes sustained inflation. So Friedman's assertion that inflation is a monetary phenomenon remains true.
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Suppose the government institutes a new investment tax credit. This is likely to
A) shift the short-run aggregate supply curve to the right by an amount equal to the amount of tax credit times the spending multiplier. B) shift the aggregate demand curve to the right by an amount equal to the amount of tax credit times the spending multiplier. C) shift the short-run aggregate supply curve to the right by an amount equal to the initial change in investment times the spending multiplier. D) shift the aggregate demand curve to the right by an amount equal to the initial change in investment times the spending multiplier.
The federal funds market is the market in which
a. banks lend and borrow reserves from each other for short periods of time b. the Fed loans reserves to banks for short periods of time c. banks withdraw reserves from the Fed for short periods of time d. government borrows from the fed for short periods of time e. the Fed borrows from the government for short periods of time