If the money demand function is unstable then ________.
A) velocity of money is unstable and monetary policy is more effective
B) monetary policy is ineffective
C) fiscal policy is more effective than monetary policy
D) neither fiscal nor monetary policy will impact aggregate output

Question

Quizplus · Accepted Answer

The correct answer is A. If the money demand function is unstable, then the velocity of money is also unstable. This means that the relationship between the money supply and the price level is unpredictable. As a result, monetary policy, which involves changing the money supply, becomes less effective.

If the Money Demand Function Is Unstable Then ________