ECON 201 Lecture Notes - Lecture 20: Fiscal Policy, Monetarism, Stabilization Policy

• School: University of Maryland
• Department: Economics
• Course: ECON 201
• Professor: John Neri

Document Summary

Complications: expectations, technology, events abroad, and other factors constantly shift expenditure functions, multipliers not precisely known, full employment gdp difficult to measure, fiscal policies act with time lags, politicians are in charge. Monetarism, velocity, and the quantity theory of money: the quantity theory of money, velocity, number of times per year that an average dollar is spent on goods and services, calculated as the ration of nominal gdp to the number of dollars in the money stock. Velocity: nominal gdp, measure of money value of transactions, real gdp (y) x price level (p, m x v = p x y: equation of change, states that the money value of gdp transactions must be equal to the product of the average stock of money times velocity, note this is an arithmetic link, not economic, strict quantity theory not an adequate model of ad because v is not constant, determinants of velocity, changes in/and efficiency of payments system.