A monetarists would expect an increase in government spending to have a strong effect on output only if the spending increase was
A)financed by an increase in the money supply.
B)financed by a sale of bonds.
C)financed by an increase in taxes.
D)accompanied by a higher in the deficit.

Question

Quizplus · Accepted Answer

Monetarists believe that changes in the money supply are the main driving force behind changes in output and economic activity. Therefore, an increase in government spending financed by an increase in the money supply is likely to stimulate output and economic activity. Financing through the sale of bonds, an increase in taxes, or a higher deficit would not have the same effect according to monetarist theory.

A Monetarists Would Expect an Increase in Government Spending to Have