Aggregate Demand depends on the Money Supply and on Velocity Monetarists argue that M and V can change aggregate demand As opposed to Keynesians who argue that changes in C, I, G, EX or IM can change the aggregate demand 3. 3. Keynesians argue that the crowding-out effect is rather insignificant. Monetarists argue that velocity is reasonably predictable. | This problem has been solved! Neo-Keynesians are less confident and argue that either contention is an exaggeration. An increase in the money supply would result in the lowering of interest rates. Also, GDP can be used to compare the productivity levels between different countries.. O The short-run aggregate supply curve is horizontal. The policy reduces the money supply in the economy, A negative interest rate policy, or NIRP, is an uncommonly used monetary policy tool where a central bank will set target interest rates at a negative value. To keep advancing your career, the additional CFI resources below will be useful: Become a certified Financial Modeling and Valuation Analyst (FMVA)®FMVA® CertificationJoin 350,600+ students who work for companies like Amazon, J.P. Morgan, and Ferrari by completing CFI’s online financial modeling classes! The velocity of money is constant. Instead, people have a stable desire to hold money relative to holding other financial assets, holding real assets, and buying current output. Monetarists argue that the crowding-out effect is rather large. Monetarists Argue That A. They say this because they argue that an increase in the supply of money will simply lead to an increase in the price level. 3. Central banks are able to regulate the money supply by making use of a repo rate (or a Federal Funds rate). View desktop site, 12. e. All of the answers are correct. Accordingly, monetarists argue that policymakers are able to control inflation by not allowing M to grow faster than the desired rate of GDP growth (Q). 4. B. Monetarists rely upon stable velocity of money to argue for a constant rate of growth of the money supply. A product is a tangible item that is put on the market for acquisition, attention, or consumption while a service is an intangible item, which arises from. Monetarists also point out those changes in the money supply take place because the monetary authority, the Central Bank, allows them. The rate should be quoted as a percentage. The quantity theory of money assumes that the velocity of money: is constant. A. An increase in the quantity of goods and services being produced would indicate constant price levels. Monetarists believe that the velocity of money (V or rather, ‘k’, in terms of theory) tends to stay constant. On the other hand, Keynesian economists believe that the velocity of circulation is an unstable concept that can change rapidly, leading to changes in the money supply. The concept relates the size of economic activity to a given money supply and the speed of money exchange is one of the variables that determine inflation. When factoring in inflation, one can argue that, though the index has been flat since 2008, in a sense, Transactions are in a steady decline – consistent with the decline of Money Velocity. The Quantity 3) In the Monetarists' view, a one-time increase in the price level results from a(n) A) technological improvement. 3. ANS: F PTS: 1 DIF: Moderate REF: Two views of the monetary policy transmission mechanism. Nominal GDP rose only 0.3 percent in the first quarter. The economic growth must be supported by additional money supply. NOT THAT VELOCITY IS CONSTANT. Monetarists believe that velocity (V) is constant and changes to money supply (M) is the sole determinant of economic growth, a view that serves as a bone of contention to Keynesians. Monetarists advocate increasing the money supply by a constant rate year after year. Short run In the short run any increase in the money supply may lead to an increase in aggregate demand. D) interest-rate increase. Monetarists - AS & AD Moderate Monetarists would argue, as Classical economists do, that the economy may behave slightly differently in the short run from in the long run. an increase in the money supply will. B. Since money growth plus velocity growth equals nominal GDP growth, M2 velocity must have declined by 6.6 percent. Furthermore, a monetarist believes that the regulation of the money supply can impact the performance of an economy. Monetarists also point out those changes in the money supply take place because the monetary authority, the Central Bank, allows them. But they also argue that since money supply is positively related to interest rate and is relatively interest elastic, the combined interest elasticities of money supply and demand make the LM schedule interest elastic. B.an increase in the money supply will affect only output in the long run. C) supply shock. The economic growth must be supported by additional money supply. Monetarists argue that the velocity of money: a) Is constant b) Is reduced when fiscal policy puts idle money balances to work c) Increases when there is a recession because people accumulate money balances d) Increases as much as total spending falls so that MV remains constant how often workers are paid does not change very much. Monetarism Which Of The Following Is A Position Held By Monetarists? Difficulty: M Type: A Most monetarists argue against an activist monetary policy. O Aggregate demand depends on the money supply and on velocity. B. 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