The close relationship between M2 and nominal GDP in the 1960s and 1970s vanished from the 1980s through 2015.Which of the following contributed to this breakdown?
I.deregulation of the banking industry
II.introduction of new financial products (not included in M2)
Which allowed people to transfer funds into their checking accounts as and when needed
III.monetary policy lags
A)I and II only
B)II only
C)II and III only
D)I, II, and III

Question

Quizplus · Accepted Answer

I and II contributed to the breakdown. Deregulation of the banking industry allowed for more flexibility and innovation in financial products, leading to the introduction of new financial instruments not captured by M2. These changes made M2 a less reliable indicator of economic activity.

The Close Relationship Between M2 and Nominal GDP in the 1960s