A problem with a monetary rule that requires the Fed to keep money growth constant is:
A) the Fed has no control over money growth.
B) constant money growth implies more volatility in inflation.
C) constant money growth implies more volatility in real output growth.
D) the Fed must ignore changes in money velocity.

Question

Quizplus · Accepted Answer

A monetary rule that mandates constant money growth does not allow the Fed to adjust for changes in money velocity. If velocity changes, keeping money growth constant could lead to inappropriate levels of liquidity in the economy, affecting inflation and economic stability.

A Problem with a Monetary Rule That Requires the Fed