Which of the Following Is Consistent with the Monetarist View

question 122

Multiple Choice

Which of the following is consistent with the monetarist view?

• A)A reduction in taxes will leave the value of real output unaffected.
• B)Prices may be affected by increases in G or reductions in T.
• C)Changes in M may cause changes in V and Q in the long run.
• D)Monetary policy should be used to correct a shortfall in aggregate demanD.This follows the logic of crowding out: lower taxes will lead to lower government spending but ultimately to higher private sector spending.

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Definitions:

Revealed Preference

A theory that assumes individuals' preferences can be determined by their purchasing habits.

Weak Axiom

A principle in consumer choice theory stating that if a consumer prefers bundle A over bundle B when both are available at the same prices, then the consumer will not purchase more of bundle B if its price rises.

Revealed Preference

An economic theory stating that the preferences of consumers can be understood by their purchasing habits.

Prices

The monetary value assigned to goods and services in a market, dictating the exchange rate at which these can be traded.