Although real variables such as unemployment and real GDP are the best measures of economic performance, most economists do not advocate manipulating money supply directly to hit a real target because:
A)they believe a constant growth rate of the money supply is the best way to stabilize real GDP or unemployment.
B)if the Bank of Canada chose a target that was not natural output or the natural unemployment rate, the result would be accelerating inflation or deflation.
C)if the Bank of Canada chose a target for the unemployment rate above the natural rate, the result would be accelerating inflation.
D)if the Bank of Canada chose a target for the unemployment rate below the natural rate, the result would be accelerating deflation.

Question

Quizplus · Accepted Answer

Economists believe that targeting real variables like output or unemployment directly with monetary policy can lead to accelerating inflation or deflation if the targets are not aligned with natural levels.

Although Real Variables Such as Unemployment and Real GDP Are