Econ 40T Exam 12: Monetarist Economics, Exams of Economics

Download Econ 40T Exam 12: Monetarist Economics and more Exams Economics in PDF only on Docsity! , Econ 40T/ Section 0101 Exam 12 November 2, 1987 100 points PROBLEMS Each question is worth ten points. 1. Use an IS-LM curve graph to explain why, if the interest elasticity of money demand is low, as the Monetarists assert, monetary policy is much more effective than fiscal policy. (Label the curves and axes.) 2. Draw a number of Monetarist Short Run Phillips Curves and a Long-Run one. Label the curves and axes. Why does the economy shift from one Short Run curve to another? 3. a. If a small economy has 10 people who don't want to work, 20 people in the labor force, and 5 people who are unemployed, what is the unemployment rate? fa. If one of the unemployed people just quit his job to find a better one and four have been laid off because of a recessionary downturn in the economy, what is the natural rate of unemployment in the small economy? ESSAYS Please give detailed, complete answers to each question. 20 points T, Explain the differing assumptions between the Monetarists and Neo-Classical theorists about the information market participants possess and the degree to which these differing assumptions account for the different polfcy conclusions one derives from the two models. 25 points 2. Monetarists believe that monetary policy has an extremely potent effect on the economy but they argue that monetary policy should consist only in a slow steady growth of the money supply. Why? 25 points 3. What is the policy Ineffectiveness Postulate? What leads Neo-classical economists to argue that it's true?