Identify how ideas from monetarism and rational expectations have been incorporated into mainstream thinking about macroeconomics.
What will be an ideal response?
First, monetarists have gotten mainstream economists to recognize that changes in the money supply are an important element in explaining long-lasting and rapid inflation. Second, mainstream economists now recognize that expectations matter because of rational expectation theory and because of theories coordination failures in the economy.
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Within a system of perfectly flexible exchange rates, an decrease in the United States demand for imports would result in a
a. rise in the exchange rate. b. fall in the exchange rate. c. balance of payments deficit. d. balance of payments surplus.
Between 1914 and 1920, the US price level ______________
a. fell dramatically. b. nearly doubled. c. rose and fell in accordance with intensity of the war. d. remained relatively stable.