In monetarist business cycle theory, increases in money growth temporarily _ real GDP and
The price level.
A) increase; rise
B) decrease; lower
C) decrease; rise
D) increase; lower

Question

Quizplus · Accepted Answer

According to monetarist business cycle theory, an increase in money growth leads to an increase in aggregate demand, which leads to an increase in real GDP (output). However, this increase in demand also leads to an increase in prices as firms raise prices to take advantage of the increased demand. Therefore, real GDP increases while prices rise temporarily.

In Monetarist Business Cycle Theory, Increases in Money Growth Temporarily