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Imagine a country in which Keynesians and Monetarists agree about all aspects of the economy except for the income elasticity of money demand (c1).
Formally, using superscripts "M" and "K" to denote Monetarists and Keynesians respectively, we know cM1 = αcK1 where α is a number greater than 1. Comparing the AD curves of Keynesian and Monetarist models, which of the following statements is correct?

A. The Monetarist AD curve is always on the right of the Keynesian AD curve.
B. The Monetarist AD curve is always on the left of the Keynesian AD curve.
C. The Monetarist AD curve is on the right of the Keynesian AD curve only when Y < Y ¯ .
D. The Monetarist AD curve is on the left of the Keynesian AD curve only when Y < Y ¯ .

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M940882

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