Monetarists argue that an exogenous increase in investment spending is likely to be offset by a decrease in
A) the money supply.
B) interest rates.
C) government spending.
D) consumption.

Question

Quizplus · Accepted Answer

Monetarists believe that any exogenous increase in investment spending will lead to a reduction in consumption spending, which will offset the initial increase in investment spending. This is because increased investment spending will increase the demand for goods and services, causing prices to rise. As prices rise, consumers will reduce their consumption spending due to the higher cost of goods, leading to a decrease in aggregate demand. However, there is no reason to expect that an increase in investment spending would lead to a decrease in the money supply, interest rates or government spending.

Monetarists Argue That an Exogenous Increase in Investment Spending Is