Question

The Great Depression was ended in the United States by:

1)the government running budget surpluses throughout the 1930s.
2)the government increasing the money supply throughout the 1930s.
3)central planning of the economy by the government.
4)the huge amounts of government spending required to fight WWII during the early 1940s.

The main difference between the classical model of the price level and the modern understanding of the relationship between the money supply, the price level, and real GDP is that according to classical economists, _____, while today's economists _____.

1)money is neutral in the long run; do not consider money to be neutral in the long run.
2)the adjustment of prices takes some time; expect changes in the money supply to be instantaneous.
3)did not consider money to be neutral in the long run; consider money neutral in the long run.
4)the adjustment of prices to changes in the money supply is instantaneous; argue that this adjustment process takes some time.

The main idea behind monetarism is that:

1)the aggregate output will be even greater than potential output if the money supply grows at a constant rate.
2)the aggregate price level will increase proportionally if the money supply grows at a constant rate.
3)the government budget will have a deficit if the government spending grows at a constant rate.
4)the aggregate output will grow steadily at a constant rate if the money supply also grows at a constant rate.

Answer 1

1)The Great depression was ended in the United States by the the huge amounts of government spending required to fight World war 2 during the early 1940s. It was this huge amount of government spending which increased the aggregate demand and LED to job creation.

Hence option 4 is correct.

2) the main difference between the classical model of the price level and the modern understanding of the relationship between the money supply, the price level, and real GDP is that according to classical economist, The adjustment of prices to changes in the money supply is instantaneous (money supply Increases prices immediately having no effect on real GDP) while today's economists argue that this adjustment process takes some time (so initially money supply also leads to increase in real GDP along with price increase).

Hence option 4 is correct

3) the the main idea behind monetarism is that the aggregate output will grow steadily at a constant rate if the money supply also grows at a constant rate.

Hence, Option 4 is correct.