The monetarist theory of the business cycle regards as the factor that leads to business cycles.
A) volatility in the demand for money
B) changes in the growth rate of the quantity of money
C) volatility in the interest rate
D) unexpected increases in aggregate demand

Question

Quizplus · Accepted Answer

According to the monetarist theory, changes in the growth rate of the quantity of money are the primary cause of business cycles. Monetarists believe that an increase in the supply of money leads to an increase in aggregate demand, which in turn leads to inflation. However, this increase in demand is only temporary, as prices eventually adjust to the new level of demand, leading to a decrease in economic activity and a downturn in the business cycle. Conversely, a decrease in the supply of money leads to a decrease in demand, which leads to deflation and a decrease in economic activity, also causing a downturn in the business cycle.

The Monetarist Theory of the Business Cycle Regards as the Factor