In the monetarist business cycle theory, increases in money growth temporarily ________ real GDP and ________ the price level.
A) increase; rise
B) increase; lower
C) decrease; rise
D) decrease; lower

Question

Quizplus · Accepted Answer

Monetarist business cycle theory, primarily associated with Milton Friedman, posits that increases in the money supply can lead to short-term increases in real GDP as well as increases in the price level. This is because, in the short run, higher money supply can stimulate spending and production, leading to economic expansion, but over time, it also leads to inflation.

In the Monetarist Business Cycle Theory, Increases in Money Growth