Using the monetarist model, place the following events in the order in which they occur in a business cycle.
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) II, III, I
B) III, II, I
C) I, III, II
D) The events are not part of a monetarist model of the business cycle.

Question

Quizplus · Accepted Answer

In the monetarist model, when the Federal Reserve decreases the growth rate of the quantity of money (II), it leads to a decrease in aggregate demand, causing the AD curve to shift leftward (III). As a result, money wages eventually fall, leading to a rightward shift in the SAS (Short-Run Aggregate Supply) curve (I). This sequence reflects the monetarist perspective on how monetary policy influences the business cycle.

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