The monetarist theory of the business cycle regards __________as the factor that leads to business cycles.
A) volatility in the demand for money
B) volatility in the interest rate
C) unexpected increases in aggregate demand
D) changes in the growth rate of the quantity of money

Question

Quizplus · Accepted Answer

According to the monetarist theory, changes in the growth rate of the quantity of money are the primary cause of business cycles. When the growth rate of the money supply is too high, it leads to excessive aggregate demand and inflation. Conversely, when the growth rate of the money supply is too low, it leads to a decrease in aggregate demand, recession, and deflation. Therefore, the monetarist theory emphasizes the importance of controlling the growth rate of the money supply to stabilize the economy.

The Monetarist Theory of the Business Cycle Regards __________As the Factor