Economist Milton Friedman called for a policy rule that keeps the growth rate of the money supply at 3% because:
A) real shocks on average are 3% of real GDP.
B) spending shocks on average are 3% of real GDP.
C) the economy's long-run potential growth rate is 3%.
D) the money supply has grown on average at 3% historically.

Question

Quizplus · Accepted Answer

Milton Friedman believed that keeping the growth rate of the money supply at 3% would match the economy's long-run potential growth rate, leading to stable prices and economic growth. He argued that deviations from this rule could cause inflation or recessions.

Economist Milton Friedman Called for a Policy Rule That Keeps