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PRACTICE QUESTIONS ORTHODOX MONETARISM1. What was the Keynesian explanation of the Great Depression? (3 Marks)
2. The development of Orthodox Monetarism can be traced back over 3 time periods, name
these periods and the developments that took place within each time period (9 Marks)
3. Assume initial equilibrium where: marginal rate of return from money holdings = marginal
rate of return from financial & real assets. Now assume there is an open market purchases
of bonds. Explain what will happen to the demand for bonds and the demand for money
and how do we get back to a state of equilibrium. (9 Marks)
4. Assume authorities want to decrease unemployment through the expansion of money
supply. Use a well labelled Phillips Curve to explain the process leading to equilibrium in
this economy. (15 Marks)
5. Explain the difference between Adaptive and Rational Expectations Hypotheses. (6 Marks)
6. Use well labelled Phillips curve diagrams to illustrate the differences between the two
Hypotheses mentions in question 5 above. (20 Marks)
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