Question

Monetarists argue that fiscal policy is ineffective because: a. the velocity of money is predictable. b. the crowding-out effect reduces investment. c. prices and wages are sticky in the short run. d. it causes the value of the dollar to depreciate.

Answer 1

Monetarists argue about the ineffectiveness of the fiscal policy because the crowding-out effect leads to a reduction in investment.

Option B is the correct answer.

What is Monetarism?

Monetarism is a theory of macroeconomics where the money supply variates in respect of economic variables like production volume, market prices, employment factors, etc.

The crowding-out effect creates the engagement of the government in the market due to which rates of interest are goes on rising which ultimately leads to a downfall in the investment by private entities. As a result, the fiscal policy of the government becomes ineffective.

Therefore, the crowding-out effect results in the ineffectiveness of the fiscal policy as argued by the Monetarists.

Learn more about the Monetarism in the mentioned link:

https://brainly.com/question/14257364

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