In a recession,monetarists believe
A)Velocity varies in response to fiscal policy.
B)Interest rates rise to eliminate the recession.
C)Fiscal policy is ineffective.

Question

Quizplus · Accepted Answer

Monetarists believe that changes in the money supply have a direct and predictable effect on aggregate demand and, thus, the overall level of economic activity. They argue that fiscal policy is ineffective in stabilizing the economy during a recession because of the time lags associated with the legislative process and the inefficient allocation of resources that results from political considerations. Instead, they advocate for the use of monetary policy to increase the money supply and lower interest rates, which will stimulate investment and consumption spending and help to pull the economy out of the recession.

In a Recession,monetarists Believe