Author Question: Which of the following statements about Keynes' contribution to macroeconomics is correct? A) ... (Read 21 times)

jparksx · **on:** Jun 30, 2018

Which of the following statements about Keynes' contribution to macroeconomics is correct?

A) Although he published his most important ideas about the economy long before the 1930s, few economists paid attention to Keynes until the Great Depression proved him correct.
B) Keynes argued that depressions and recessions were almost always caused by changes in the money supply.
C) Keynes argued that balancing the budget could be an effective way to cure a recession or depression.
D) all of the above
E) none of the above

Question 2

Discuss the change of the design of monetary policy over time.

What will be an ideal response?

nothere · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

E

Answer to Question 2

Traditionally, the design of monetary policy was focused on nominal money growth. But, because of the poor relation between inflation and nominal money growth, this approach was abandoned by most central banks. Central banks now typically focus on an inflation rate target rather than a nominal money growth rate target. And they think about monetary policy in terms of determining the nominal interest rate rather than determining the rate of nominal money growth. The Taylor rule gives a useful way of thinking about the choice of the nominal interest rate. The rule states that the central bank should move its interest rate in response to two main factors: the deviation of the inflation rate from the target rate of inflation, and the deviation of the unemployment rate from the natural rate of unemployment. A central bank that follows this rule will stabilize activity and achieve its target inflation rate in the medium run.