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

Question

Quizplus · Accepted Answer

According to the monetarist business cycle theory, increases in money growth temporarily increase real GDP and raise the price level. This is based on the belief that fluctuations in the money supply are the primary driver of business cycles, and that increasing the money supply leads to increased investment and aggregate demand, which in turn stimulate economic growth. However, this effect is only temporary, as eventually the economy will reach its potential output level and inflationary pressures will build, leading to a rise in prices.

In Monetarist Business Cycle Theory, Increases in Money Growth Temporarily__________