The close relationship between M2 and nominal GDP in the 1960s and 1970s vanished from the 1980s through 2015. Which of the following contributed to this breakdown?
I. deregulation of the banking industry
II. introduction of new financial products (not included in M2) which allowed people to transfer funds into their checking accounts as and when needed
III. monetary policy lags
A) I and II only
B) II only
C) II and III only
D) I, II, and III

Question

Quizplus · Accepted Answer

Deregulation of the banking industry and the introduction of new financial products allowed for more flexibility in managing funds, weakening the direct relationship between M2 and nominal GDP.

The Close Relationship Between M2 and Nominal GDP in the 1960s