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Chapter 19: Q4. (page 405)

If the money supply fell by 10 per cent, a monetarist would expect nominal GDP to __________.

a. rise

b. fall

c. stay the same

Short Answer

Expert verified

The correct option is (b): fall.

Step by step solution

01

Explanation

According to the monetarists, the change in money supply is directly proportional to the change in nominal GDP. It means that if the money supply increases (decreases), the nominal GDP will increase (decrease). In the question, the money supply is decreasing. Hence, the monetarist would expect the nominal GDP also to fall.

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