According to the monetarists, what is the main cause of macroeconomic instability?
What will be an ideal response?
Monetarists cite inappropriate monetary policy as the most important cause of macroeconomic instability. They argue, for example, that an increase in the money supply increases aggregate demand, which if the economy is at the fully employed level increases the price level. Higher prices then cause firms to increase their real output and employment falls. However, once nominal wages account for inflation, production will decrease back to its full employment level and employment will decrease back to its natural rate.
The opposite happens from a decrease in the money supply. This reduces aggregate demand and real output falls, putting employment below its natural rate. However, when wages adjust to the lower price level, output and employment return to their full-employment levels.
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If price discrimination occurs in a market
A) consumers whose demand for the product sold is more elastic pay higher prices than consumers whose demand is less elastic. B) the firm earns arbitrage profits. C) the marginal cost of production is constant. D) the law of one price does not hold.
Which of the following would cause the poverty threshold income level for a given family to increase by 20 percent from one year to another?
a. a 20 percent increase in the family's income b. a 20 percent decrease in the family's income c. a 20 percent increase in the general level of prices d. a 20 percent increase in real national income