The rules-based monetary policy that some nonactivists have proposed to maintain price stability reads this way:
A) The annual growth rate in the money supply will equal the average annual growth rate in Real GDP minus the growth rate in velocity.
B) The annual growth rate in the money supply will equal the average annual growth rate in Real GDP plus the growth rate in velocity.
C) The annual growth rate in the money supply will equal the average annual growth rate in Real GDP divided by the growth rate in velocity.
D) The annual growth rate in the money supply will equal the average annual growth rate in Real GDP times the growth rate in velocity.

Question

Quizplus · Accepted Answer

The proposed rules-based monetary policy states that the growth rate in the money supply should equal the average annual growth rate in Real GDP minus the growth rate in velocity. This is because if the money supply grows at the same rate as Real GDP, but the velocity of money also increases, it could lead to inflationary pressures. By subtracting the growth rate in velocity, the policy aims to maintain price stability while still allowing for economic growth.

The Rules-Based Monetary Policy That Some Nonactivists Have Proposed to Maintain