Monetarists and classical economists:
A) assume that stimulative monetary policy will create high levels of GDP without inflation.
B) assume that stimulative monetary policy will create high levels of GDP and slightly high prices.
C) assume the economy operates at full employment and stimulative monetary policy will only cause the price level to rise.
D) assume that the economy operates at full employment and stimulative monetary policy will increase both aggregate supply and aggregate demand.
E) assume that the Keynesian description of monetary policy underestimates the true stimulative effect of an increase in the money supply.

Question

Quizplus · Accepted Answer

Monetarists and classical economists assume that the economy operates at full employment and that stimulative monetary policy will only cause the price level to rise, not increase output. They hold the view that inflation is caused by an excess supply of money, and that long-term, sustained growth can only be achieved through increases in the supply of goods and services (aggregate supply).

Monetarists and Classical Economists