The Monetarist transmission mechanism through which monetary policy affects the price level, real GDP, and employment depends on the:
A) indirect impact of changes on the interest rate.
B) indirect impact of changes on profit expectations.
C) direct impact of changes in fiscal policy on aggregate demand.
D) direct impact of changes in the money supply on aggregate demand.

Question

Quizplus · Accepted Answer

Monetarists believe that changes in the money supply have a direct impact on aggregate demand, which in turn affects the price level, real GDP, and employment. The indirect impact of changes on the interest rate or profit expectations is not the primary transmission mechanism according to the Monetarist perspective. Fiscal policy, which involves changes in government spending and taxes, is not part of the Monetarist transmission mechanism of monetary policy.

The Monetarist Transmission Mechanism Through Which Monetary Policy Affects the Price