A constant money growth rule requires the Fed to ignore changes in velocity.

Question

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A constant money growth rule means that the Fed has a target growth rate for the money supply, which it will achieve by adjusting its open market operations. The rule does not take into account changes in velocity, which is the speed at which money circulates through the economy. Therefore, the Fed must ignore changes in velocity to maintain a constant money growth rule.

A Constant Money Growth Rule Requires the Fed to Ignore