-In the above figure, suppose the economy starts at point A. The short-run response to an increase in the growth rate of the quantity of money in the monetarist business cycle theory is for the price level to ________ and real GDP to ________.
A) fall to 90; remain at $16 trillion
B) rise to 120; increase to $17 trillion
C) rise to 130; remain at $16 trillion
D) remain at 110; remain at $16 trillion

Question

-In the above figure, suppose the economy starts at point A. The short-run response to an increase in the growth rate of the quantity of money in the monetarist business cycle theory is for the price level to ________ and real GDP to ________.
A) fall to 90; remain at $16 trillion 
B) rise to 120; increase to $17 trillion 
C) rise to 130; remain at $16 trillion 
D) remain at 110; remain at $16 trillion

Quizplus · Accepted Answer

In the monetarist business cycle theory, an increase in the growth rate of the quantity of money leads to a short-run increase in both the price level and real GDP. This is because, in the short run, prices and wages are sticky, allowing for real effects on the economy from changes in the nominal money supply.

-In the Above Figure, Suppose the Economy Starts at Point