Which of the following is TRUE regarding the monetarist theory of the business cycle?
I. Monetarists assume that the quantity of money increases at a constant rate.
II. Fluctuations in interest rates cause business cycles.
III. Changes in the growth rate of the quantity of money affect aggregate demand.
A) I only
B) III only
C) I and II
D) II and III

Question

Quizplus · Accepted Answer

Monetarist theory, particularly associated with Milton Friedman, emphasizes that changes in the money supply have major influences on national output in the short run and the price level over longer periods. It posits that variations in the growth rate of the quantity of money directly affect aggregate demand, but it does not necessarily assume that the quantity of money increases at a constant rate or that fluctuations in interest rates are the primary cause of business cycles.

Which of the Following Is TRUE Regarding the Monetarist Theory