Question

According to monetarist thought, the natural rate of unemployment and output is not determined by:

• A. Capital Stock
• B. Size of labour force
• C. Level of technology
• D. Aggregate demand

Hint:

Monetarists emphasize the role of real factors such as capital stock and technology, while aggregate demand only has short-term effects.

Answer 1

The Correct Option is D

Step 1: Understanding monetarist thought.
Monetarists, particularly Milton Friedman, argue that the natural rate of unemployment is determined by real factors, such as capital stock, labor force, and technology. They believe that aggregate demand only affects output in the short run, not in the long run.

Step 2: Analysis of options.
- (A) Capital stock: This is correct. The natural rate of output is determined by the stock of capital available in the economy.
- (B) Size of labour force: This is correct. The natural rate of unemployment is influenced by the size and skills of the labor force.
- (C) Level of technology: This is correct. Technological advances also determine the economy's natural level of output.
- (D) Aggregate demand: This is incorrect. Monetarists argue that in the long run, aggregate demand does not determine the natural rate of unemployment or output.

Step 3: Conclusion.
The correct answer is (D), as according to monetarist thought, aggregate demand does not determine the natural rate of unemployment or output.