A nominal GDP rule requires the Fed to:
A) keep the money supply constant.
B) keep the rate of money growth constant.
C) adjust the money supply enough to make up for changes in velocity.
D) adjust interest rates in the opposite direction of real GDP growth.

Question

Quizplus · Accepted Answer

A nominal GDP rule requires the Fed to adjust the money supply enough to make up for changes in velocity, which reflects changes in the economy's tendency to hold money. This helps to stabilize nominal GDP and keeps the economy on track towards its long-term growth trend. Keeping the money supply or rate of money growth constant would not allow for adjustments based on changes in velocity, while adjusting interest rates in the opposite direction of real GDP growth would be a real GDP rule, not a nominal GDP rule.

A Nominal GDP Rule Requires the Fed To