Refer to the information provided in Figure 18.1 below to answer the questions that follow. Figure 18.1
-Refer to Figure 18.1.According to the monetarists,a recession can be caused when
A)AD1 shifts to the right.
B)AD1 shifts to the left.
C)AS1 shifts to the left.
D)LRAS shifts to the left.

Question

Refer to the information provided in Figure 18.1 below to answer the questions that follow.  Figure 18.1
-Refer to Figure 18.1.According to the monetarists,a recession can be caused when
A)AD1 shifts to the right. 
B)AD1 shifts to the left. 
C)AS1 shifts to the left. 
D)LRAS shifts to the left.

Quizplus · Accepted Answer

Monetarists believe that changes in the money supply affect aggregate demand. If the money supply decreases, as shown by a left shift in the LM curve, interest rates increase, leading to a decrease in consumption and investment spending, causing a leftward shift in AD1 and ultimately causing a recession. Therefore, B is the correct choice as a leftward shift in AD1 is indicative of a recession according to monetarists.

Refer to the Information Provided in Figure 18