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Consider the following statements.
1. For the monetarists, a particular level of money supply for a particular level of production is healthy for an economy
2. Extra creation of money over the same level of production causes inflation
3. Monetarists accepted this Keynesian theory of inflation.
Which of these statements is/are correct?
- a)1 and 2 Only
- b)2 and 3 Only
- c)1 and 3 Only
- d)All of them
Correct answer is option 'A'. Can you explain this answer?
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Verified Answer
Consider the following statements. 1. For the monetarists, a particul...
- For the monetarists, a particular level of money supply for a particular level of production is healthy for an economy.
- Extra creation of money over the same level of production causes inflation.
- They suggested proper monetary policy (money supply, interest rates, the printing of currencies, public borrowing etc.), to check situations of inflationary pressure on the economy.
- Monetarists rejected the Keynesian theory of inflation.
Most Upvoted Answer
Consider the following statements. 1. For the monetarists, a particul...
Monetarism and Inflation
Monetarism is an economic theory that focuses on the role of the money supply in the economy. It suggests that changes in the money supply have a direct impact on the level of economic activity and the price level. Here are the statements given and their correctness:
1. For the monetarists, a particular level of money supply for a particular level of production is healthy for an economy - Correct
Monetarists believe that a stable and predictable growth rate in the money supply is necessary to maintain economic stability. They argue that if the money supply grows too quickly, it can lead to inflation, while if it grows too slowly, it can lead to deflation and recession. Therefore, they suggest that a particular level of money supply for a particular level of production is healthy for an economy.
2. Extra creation of money over the same level of production causes inflation - Correct
Monetarists believe that inflation is caused by an increase in the money supply that is not matched by an increase in the production of goods and services. They argue that when there is too much money chasing too few goods, prices will rise, leading to inflation. Therefore, extra creation of money over the same level of production causes inflation.
3. Monetarists accepted this Keynesian theory of inflation - Incorrect
Monetarists do not accept the Keynesian theory of inflation, which suggests that inflation is caused by aggregate demand exceeding aggregate supply. Monetarists believe that inflation is always a monetary phenomenon and can be controlled by manipulating the money supply.
Conclusion:
From the above discussion, it is clear that statements 1 and 2 are correct, while statement 3 is incorrect. Therefore, the correct answer is option A - 1 and 2 only.
Monetarism is an economic theory that focuses on the role of the money supply in the economy. It suggests that changes in the money supply have a direct impact on the level of economic activity and the price level. Here are the statements given and their correctness:
1. For the monetarists, a particular level of money supply for a particular level of production is healthy for an economy - Correct
Monetarists believe that a stable and predictable growth rate in the money supply is necessary to maintain economic stability. They argue that if the money supply grows too quickly, it can lead to inflation, while if it grows too slowly, it can lead to deflation and recession. Therefore, they suggest that a particular level of money supply for a particular level of production is healthy for an economy.
2. Extra creation of money over the same level of production causes inflation - Correct
Monetarists believe that inflation is caused by an increase in the money supply that is not matched by an increase in the production of goods and services. They argue that when there is too much money chasing too few goods, prices will rise, leading to inflation. Therefore, extra creation of money over the same level of production causes inflation.
3. Monetarists accepted this Keynesian theory of inflation - Incorrect
Monetarists do not accept the Keynesian theory of inflation, which suggests that inflation is caused by aggregate demand exceeding aggregate supply. Monetarists believe that inflation is always a monetary phenomenon and can be controlled by manipulating the money supply.
Conclusion:
From the above discussion, it is clear that statements 1 and 2 are correct, while statement 3 is incorrect. Therefore, the correct answer is option A - 1 and 2 only.
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Consider the following statements. 1. For the monetarists, a particular level of money supply for a particular level of production is healthy for an economy2. Extra creation of money over the same level of production causes inflation3. Monetarists accepted this Keynesian theory of inflation.Which of these statements is/are correct?a) 1 and 2 Onlyb) 2 and 3 Onlyc) 1 and 3 Onlyd) All of themCorrect answer is option 'A'. Can you explain this answer?
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