If the Money Supply Is Growing at a Constant Rate

question 234

Multiple Choice

If the money supply is growing at a constant rate of 2% and the economy undergoes a negative demand shock, the theory of monetarism recommends:

• A) coordinating a monetary expansion with a fiscal expansion to increase aggregate demand.
• B) raising the growth rate of money supply to 3% to lower the interest rate.
• C) lowering the growth rate of money supply to 1% to increase saving.
• D) maintaining the growth rate of money supply at 2% and letting the aggregate price level fall.