Use the figure below to answer the following questions.

Figure 28.1.1
-Refer to Figure 28.1.1. Suppose the economy moves from point A to point C. According to the monetarist theory of the business cycle, what could have caused this movement?
A)an increase in the money wage rate
B)an increase in the growth rate of the quantity of money
C)a decrease in the growth rate of the quantity of money
D)an increase in uncertainty
E)animal spirits

Question

Use the figure below to answer the following questions.
  
Figure 28.1.1
-Refer to Figure 28.1.1. Suppose the economy moves from point A to point C. According to the monetarist theory of the business cycle, what could have caused this movement?
A)an increase in the money wage rate 
B)an increase in the growth rate of the quantity of money 
C)a decrease in the growth rate of the quantity of money 
D)an increase in uncertainty 
E)animal spirits

Quizplus · Accepted Answer

According to monetarist theory, changes in the quantity of money directly affect the level of output and prices in the economy. An increase in the growth rate of the quantity of money can cause inflation and an increase in output, while a decrease in the growth rate of the quantity of money can cause a decrease in output and deflation. Thus, the movement from point A to point C, which indicates a decrease in output and prices, could have been caused by a decrease in the growth rate of the quantity of money.

Use the Figure Below to Answer the Following Questions