Which of the following pieces of evidence is most consistent with the monetarist theory?
A) Labor supply decisions do not seem to depend on real interest rates.
B) Changes in real GDP and the quantity of money move closely together.
C) Money wage rates take some time to adjust to price changes.
D) Productivity and GDP move closely together.

Question

Quizplus · Accepted Answer

Monetarist theory, particularly associated with Milton Friedman, emphasizes the role of governments in controlling the amount of money in circulation. It posits that variations in the money supply have major influences on national output in the short run and the price level over longer periods. Choice B, which highlights the close movement between changes in real GDP and the quantity of money, directly aligns with this theory by suggesting that the quantity of money in an economy is a key driver of economic activity, a core tenet of monetarism.

Which of the Following Pieces of Evidence Is Most Consistent