Use the figure below to answer the following questions.

Figure 28.1.1
-Refer to Figure 28.1.1. Suppose the economy moves 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
E)a decrease in exports

Question

Use the figure below to answer the following questions.
  
Figure 28.1.1
-Refer to Figure 28.1.1. Suppose the economy moves 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 
E)a decrease in exports

Quizplus · Accepted Answer

According to the monetarist theory, changes in the quantity of money affect the economy's nominal variables, but not its real variables, in the long run. An increase in the growth rate of the quantity of money would shift the AD curve to the right, causing an increase in real GDP and the price level. This could cause the economy to move from point D to point B. The other choices are not consistent with the monetarist theory.

Use the Figure Below to Answer the Following Questions