CFA Level I · CFA Level I Exam · Understanding Business Cycles
A monetarist economist would most likely attribute the recurrent boom and bust pattern in economic activity to:
A monetarist would attribute boom and bust cycles to variations in the growth rate of the money supply. Monetarists favor steady, rule-based money growth, whereas swings in business optimism are Keynesian and technology-driven productivity shifts are part of real business cycle theory.
- Achanges in business optimism that shift investment spending
- Bvariations in the growth rate of the money supplyCorrect
- Cshifts in the productivity of capital due to new technology
Explanation
Monetarists, led by Friedman, argue that cycles result from variations in the rate of money supply growth and recommend steady, rule-based growth. Optimism-driven investment is a Keynesian idea, and productivity shocks are the real business cycle explanation.
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