In monetarist business cycle theory, the factor leading to a business cycle is represented by changes in
A) consumer spending.
B) investment spending.
C) the growth rate of the quantity of money.
D) net exports.

Question

Quizplus · Accepted Answer

According to monetarist business cycle theory, changes in the growth rate of the quantity of money are the main factor leading to business cycles. This theory emphasizes the role of monetary policy in stabilizing the economy and suggests that the central bank should manage the money supply to keep it growing at a steady rate. Variations in the money supply have a direct impact on prices, interest rates, and economic activity, which in turn affect the behavior of consumers and firms. Therefore, the quantity of money is seen as a key driver of the business cycle in this framework.

In Monetarist Business Cycle Theory, the Factor Leading to a Business