Monetarists believe that the economy tends to operate at or near full employment and that any stimulative monetary policy will primarily lead to inflation rather than increased output.

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Monetarists Believe

Question 86

Multiple Choice

Monetarists believe:

A) the cause-and-effect relationship hypothesized by the Keynesians understates the impact of stimulative monetary policy.
B) the cause-and-effect relationship hypothesized by the Keynesians is an accurate description of how monetary policy works.
C) since the economy is operating at full employment, any stimulative monetary policy will cause the inflation rate to rise.
D) the cause-and-effect relationship hypothesized by the Keynesians is backwards, and decreases in the money supply actually stimulate economic activity.

Correct Answer: