1. Milton Friedman argued that:
- the effectiveness of expansionary fiscal policy is often limited by the effects of crowding out.
- a central bank following a monetary policy rule would destabilize the economy.
- a discretionary monetary policy should be used to offset the fluctuations of the business cycle.
- the velocity of money is unstable.
2. To the extent that there is volatility in the velocity of money:
- people will not be able to plan the timing of their consumption expenditures.
- the natural rate of unemployment will be lowered.
- Congress will have to execute monetary policy, rather than the Federal Reserve.
- a monetary policy rule will not be an effective tool of stabilization.
3. The Friedman-Phelps (natural rate) hypothesis predicted that:
- effective policy action by the Federal Reserve could keep unemployment below its natural rate.
- effective policy action by Congress could keep unemployment below its natural rate.
- the apparent tradeoff between inflation and unemployment would not survive once expectations of high inflation were built into public perceptions.
- the velocity of money would become volatile when the economy reached a situation of full employment.
4. If fiscal policy is used to stimulate the economy at a key time prior to an election:
- there will be no short-term effect on unemployment.
- the result will be a political business cycle.
- it will not create any inflationary pressure.
- it will cause a supply shock rather than a demand shock.
15. The Federal Reserve adopted a monetarist approach when it:
- announced target ranges for the money supply and dropped interest rate targets.
- announced target ranges for interest rates and dropped money supply targets.
- ceased engaging in open-market operations.
- tried to push the rate of unemployment below the natural rate.