Monetarists and classical economists:
A) assume that stimulative monetary policy will create high levels of GDP without inflation.
B) assume that stimulative monetary policy will create high levels of GDP and slightly high prices.
C) assume the economy operates at full employment and stimulative monetary policy will only cause the price level to rise.
D) assume that the economy operates at full employment and stimulative monetary policy will increase both aggregate supply and aggregate demand.

Question

Quizplus · Accepted Answer

Monetarists and classical economists operate on the assumption that the economy operates at full employment, and therefore, stimulative monetary policy will only cause the price level to rise rather than increasing aggregate supply or demand. They believe that inflation is the result of an increase in the money supply, and therefore, monetary policy should be used sparingly to avoid inflationary pressures.

Monetarists and Classical Economists