The belief that monetary policy can be effective in changing aggregate demand and that the money supply is the critical monetary variable is associated with:
Answer
a Modern Keynesians.
b Monetarists.
c Supply-side economists.
d New classical economists.
To determine the correct answer, let's break down the question and analyze the different options:
a) Modern Keynesians: Modern Keynesians believe in the effectiveness of fiscal policy, such as government spending and taxation, in stimulating aggregate demand. They tend to focus less on monetary policy.
b) Monetarists: Monetarists believe that controlling the money supply is crucial in managing the economy. They argue that changes in the money supply directly impact aggregate demand and therefore support the use of monetary policy.
c) Supply-side economists: Supply-side economists focus on policies that aim to increase production and supply-side factors, such as reducing taxes and regulations. They are less concerned with monetary policy.
d) New classical economists: New classical economists emphasize the importance of market efficiency and rational expectations. They argue that individuals make economic decisions based on rational calculations, and therefore changes in monetary policy are unlikely to have a significant impact on aggregate demand.
Based on the explanations above, the belief that monetary policy can be effective in changing aggregate demand and that the money supply is the critical monetary variable is associated with b) Monetarists.