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Monetarists and classical economists: a. assume that the economy operates at full employment and stimulative monetary...

Monetarists and classical economists:

a.

assume that the economy operates at full employment and stimulative monetary policy will increase both aggregate supply and aggregate demand.

b.

assume the economy operates at full employment and stimulative monetary policy will only cause the price level to rise.

c.

assume that stimulative monetary policy will create high levels of GDP without inflation.

d.

assume that stimulative monetary policy will create high levels of GDP and slightly high prices.

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Answer #1

Option B is correct

Both views aur of the opinion that economy always operates at the full employment level and if there is a difficult it is only temporary. If an attempt is made to change the level of GDP by increasing the money supply, it will result in increasing the price level because the aggregate supply is vertical and all the increase in money supply will cause inflation.

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