The policy rule recommended by monetarists is that the money supply should be increased at the same rate as the potential growth in
A) real GDP.
B) population.
C) the level of prices.
D) the velocity of money.

Question

Quizplus · Accepted Answer

Monetarists believe that the economy's potential growth rate is determined by the growth rate of its productive capacity. Therefore, to avoid inflation or deflation, the money supply should be increased at the same rate as the potential growth rate of real GDP. This ensures a stable price level and promotes economic growth.

The Policy Rule Recommended by Monetarists Is That the Money