Using the monetarist model, place the following events in the order in which they occur in a busines
I. Money wages fall and the SAS curve shifts rightward.
II. The Federal Reserve decreases the growth rate of the quantity of money.
III. The AD curve shifts leftward.
A) III, II, I
B) II, III, I
C) I, III, II
D) The events are not part of a monetarist model of the business cycle.

Question

Quizplus · Accepted Answer

According to the monetarist model, a decrease in the growth rate of the quantity of money by the Federal Reserve will lead to a leftward shift in the AD curve. This will then lead to a decrease in output and employment in the short run, which will cause money wages to fall. As money wages fall, the SAS curve will shift rightward, leading to a gradual increase in output and employment in the long run. Therefore, the correct order of events is II, III, I.

Using the Monetarist Model, Place the Following Events in the Order