Sia
Question
Statistics
Posted 7 months ago
What is the primary cause of deflation according to monetarist theory?
Choose 1 answer:
(A) A rapidly changing velocity of money
(B) The money supply increases too rapidly for a long time.
(c) The money supply decreases faster than real output decreases.
(D) A stable quantity velocity of money
(E) Any decrease in the money supply.
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Answer from Sia
Posted 7 months ago
Solution by Steps
step 1
Identify the primary cause of deflation according to monetarist theory. Monetarist theory suggests that deflation is primarily caused by changes in the money supply
step 2
Review the answer choices in relation to monetarist theory. Monetarists, such as Milton Friedman, argue that deflation is typically the result of a decrease in the money supply relative to the level of real output
step 3
Select the answer choice that aligns with the monetarist perspective. The choice that indicates deflation occurs when the money supply decreases faster than real output decreases is consistent with monetarist theory
Answer
C
Key Concept
Monetarist Theory on Deflation
Explanation
According to monetarist theory, deflation is primarily caused by a decrease in the money supply that is faster than the decrease in real output.
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