-In the above figure, suppose that the economy has moved from point D to point B. According to the monetarist theory of the business cycle, what could have caused this movement?
A) a decrease in the money wage rate
B) an increase in uncertainty about future sales and profits
C) an increase in the growth rate of the quantity of money
D) an increase in the money wage rate

Question

-In the above figure, suppose that the economy has moved from point D to point B. According to the monetarist theory of the business cycle, what could have caused this movement?
A) a decrease in the money wage rate 
B) an increase in uncertainty about future sales and profits 
C) an increase in the growth rate of the quantity of money 
D) an increase in the money wage rate

Quizplus · Accepted Answer

According to the monetarist theory of the business cycle, an increase in the growth rate of the quantity of money can cause the economy to move from a lower to a higher level of output and employment, which is represented by a movement from point D to point B on the diagram. Monetarists, led by Milton Friedman, argue that changes in the money supply are the most significant determinants of the business cycle.

-In the Above Figure, Suppose That the Economy Has Moved