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Classical economists would explain the fact that money is a leading, procyclical macroeconomic variable by pointing out that (a) money is not neutral, and changes

Classical economists would explain the fact that money is a leading, procyclical macroeconomic variable by pointing out that

(a) money is not neutral, and changes in the nominal money supply affect real variables.

(b) increasing the money supply shifts theLMcurve, reducing real interest rates and causing an economic expansion.

(c) increasing the money supply increases aggregate demand, causing higher levels of employment and output.

(d) when money demand rises because of a beneficial productivity shock, the Central Bank increases the money supply to prevent the price level from falling.

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