Which of the following is a position held by monetarists? The short-run aggregate supply curve is horizontal. The economy is unstable; wages and prices are inflexible. Aggregate demand depends on the money supply and on velocity. The velocity of money is constant.

Which of the following is a position held by monetarists? The short-run aggregate supply curve is horizontal. The economy is unstable; wages and prices are inflexible. Aggregate demand depends on the money supply and on velocity. The velocity of money is constant.

ENGR.ECONOMIC ANALYSIS

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Chapter1: Making Economics Decisions

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Concept explainers

Inflation and Purchasing Power Theory

In economic terms, Inflation refers to the increase in the costs of various commodities which are used in daily lifestyle like food, clothes, transport, etc. over a specific time. It may lead to a fall in the purchasing power of the people and also affects the exchange rate of the currency because of the price increase. As the purchasing power falls the unit of the currency in the economy falls. When the prices of the commodities are decreased, then the purchasing power of the consumers will rise, then it will lead to deflation and changes the currency of the base economy to that of the foreign economy which will lead to change in exchange rates.

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2. Monetarism
Which of the following is a position held by monetarists?
The short-run aggregate supply curve is horizontal.
The economy is unstable; wages and prices are inflexible.
Aggregate demand depends on the money supply and on velocity.
The velocity of money is constant.
Initially, the economy is in long-term equilibrium. Suppose there is an increase in velocity-that is, there is an increase in the average number of
times a dollar is spent to buy goods and services.
PRICE LEVEL
Show the long-run effect of this change according to the monetarist view, ceteris paribus, by dragging one or both curves on the graph below.
REAL GDP
SRAS
AD
AD
SRAS
?

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