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

Question

Quizplus · Accepted Answer

Monetarists and classical economists assume that the economy operates at full employment and that stimulative monetary policy will only cause the price level to rise. They do not believe that monetary policy can increase aggregate supply, as this is determined by long-run factors such as technology and resource availability. Their focus is on the quantity of money in the economy as the primary determinant of overall economic activity.

Monetarists and Classical Economists Assume That