If, in the coordination failure model, the nominal money supply acts as a sunspot variable, then it is likely that the nominal money supply would
A) be procyclical.
B) be acyclical.
C) be countercyclical.
D) alternatively appear to be procyclical and countercyclical.
E) be a leading indicator.

Question

Quizplus · Accepted Answer

If the nominal money supply acts as a sunspot variable in the coordination failure model, then it would send signals to agents about the state of the economy, leading to changes in their behavior and ultimately affecting business cycles. In this case, the nominal money supply would be procyclical, meaning it would move in the same direction as the business cycle.

If, in the Coordination Failure Model, the Nominal Money Supply