In monetarist business cycle theory, increases in money growth temporarily ________ real GDP and ________ the price level.
A) increase; rise
B) increase; lower
C) decrease; rise
D) decrease; lower

Question

Quizplus · Accepted Answer

According to monetarist business cycle theory, increases in money growth stimulate aggregate demand, causing an expansion in real GDP in the short run. This temporary increase in real GDP is accompanied by a rise in the price level because of the excess demand in the economy. Therefore, the correct answer is A, as increases in money growth temporarily increase real GDP and raise the price level.

In Monetarist Business Cycle Theory, Increases in Money Growth Temporarily