Milton Friedman and Anna Schwartz believe that their evidence indicates that money growth causes output fluctuations because they discovered that
A)nominal interest rates move inversely with changes in the money supply.
B)the Fed always responds passively to changes in money demand.
C)in many episodes, money changed as a result of a previous change in output.
D)in many episodes, money changes preceded output changes and were independent of them.

Question

Quizplus · Accepted Answer

Friedman and Schwartz found evidence that in many episodes, money changes preceded output changes and were independent of them. This suggests that money growth causes output fluctuations rather than the other way around. Option A is incorrect because nominal interest rates are not the focus of Friedman and Schwartz's research. Option B is incorrect because Friedman and Schwartz do not suggest that the Fed responds passively to changes in money demand. Option C is incorrect because Friedman and Schwartz found evidence that money changes sometimes preceded output changes, indicating a causal relationship between money growth and output fluctuations.

Milton Friedman and Anna Schwartz Believe That Their Evidence Indicates