Minimum Wage-Memo

Chapter 12

Q1. Writing appropriate equations, distinguish between the classical quantity theory of money and the Keynesian monetary theories. Give examples, along with their conceptual differences, as well as policy implications.

Q2. Distinguish between the theoretical arguments for a discretionary versus a rule approach in the Fed’s monetary policy actions. What are the key assumptions that the monetarists have made in advocating for a rule approach to monetary policy? If those assumptions are not valid, does it make the rule approach ineffective? Why or why not? Briefly explain. 

Q3. Explain why the velocity of either M1 or M 2 is expected to rise during a rising interest rate trend and why it is expected to fall during a declining interest rate trend? 

Q4. Why do neither monetarists nor Keynesians suggest maintaining a constant federal funds rate target? What potential consequences do they anticipate if a constant target were to be maintained? 

Q5. Why does excessive money supply, usually called printing money, accelerate inflation? Give an example.

Chapter 13

Q1. Briefly describe the theory of the Phillips curve and its origin of development as a theory of inflation-unemployment trade-off. 

Q2. Draw a hypothetical diagram of the AD-AS model of macroeconomics and explain in your own words the sources of accelerating inflation. Provide historical evidence as an example. 

Q3. Critically, but briefly, explain why the Phillips curve failed to explain the inflation and unemployment data for the US economy in the 1970s, late 1990s, and late 2010s. Were these situations identical or different? Give examples. 

Q4. Briefly explain the importance of understanding the conceptual framework of the short-run and long-run Phillips curves for economic policy implications in the US economy. 

Q5. Is the Fed’s current monetary policy contractionary or inflationary? Briefly explain your answer. Is this policy in line with the short-run Phillips curve or with the long-run Phillips curve? Why?