Monetarists therefore claim that monetary policy over the longer term is an extremely powerful weapon for controlling aggregate demand (PQ). B) during the mid-1970s, activist monetary policy was applied and the economy was healthy and stable. Some economists, including David and Christina Romer, suggested this to be due to a fundamental change in the understanding among policymakers about what aggregate demand policy can accomplish. lic choice economists favor the latter explanation (e.g., Epstein and Ferguson 1984; Anderson, Shughart, and Tollison 1988), most economists and economic historians blame the Fed's policy on misguided policy rules, as well as on petty jealousies that limited the Fed's ability to respond decisively to rapidly chang- ing conditions. Keynesian economists generally argue that aggregate demand is volatile and unstable. B) responsiveness of money demand to the interest rate is small. Monetary Policy and the Activist Nonactivist Debate Activists argue that monetary and fiscal policies should be deliberately used to smooth out the business cycle. Cyclical, structural, seasonal, and frictional. Endogeneity: Everyone has their reasons When economists say […] This thinking has several problems. I see three statements repeated by Modern Monetary Theory proponents, almost like mantras: 1. The supporters of monetary policy argue that the wage price flexibility allows the economies to achieve full employment equilibrium without any activist intervention. In part there are inevitable fluctuations. Monetarist: A monetarist is an economist who holds the strong belief that the economy's performance is determined almost entirely by changes in the … Monetary policy relates directly to U.S. oil imperialism by what types of companies Wall Street funds. Section II argues that systematic monetary policy can be used to affect the behavior of output. In less favorable conditions, monetary policy requires near omniscience and the herculean power to stop economic disasters from unfolding.This knowledge problem has been at the heart of the many failures of monetary policy, A tax on cigarettes reduces smoking and shifts some purchases to untaxed markets. Monetary policy is conducted by a nation's central bank. In the best of times, it requires a well-informed understanding of the economy and the ability to respond in a timely manner. Monetarism is a school of thought in monetary economics that emphasizes the role of governments in controlling the amount of money in circulation.Monetarist theory asserts that variations in the money supply have major influences on national output in the short run and on price levels over longer periods. Economists who favor activist monetary policy often argue that during the mid-1970s, money supply growth rates were nearly constant and still the economy went through a recession. Profits have declined in recent years. Keynesian Economics. the case in favor of rules and describing the specific monetary policy rules derived from this theory. Keynesian economists (of all stripes) want fiscal policy (essentially, government budgets) to increase consumer demand. 1. Some economists argue that an unemployment rate as high as 5.5% is acceptable since that portion of the work force is in the process of changing jobs at any given time. The Policy Rule Critique The current policy regime remains a source of dissatisfaction to many economists. Others argue that an acceptable rate is closer to 4.5%. Money is endogenous 2. we argue that, because increases in household debt-to-income ratios, which increase financial fragility, have been strongly heterogenous across income groups, as documented in Section II, heterogeneity in incomes is a key additional feature that should be explored in models of household debt and financial crises. 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