Monetarists and rational expectations theorists generally agree that
A) the Federal Reserve should adhere to a monetary rule.
B) the rate of interest and the price of bonds are positively or directly related.
C) the money supply cannot be measured and therefore cannot be controlled by the Federal Reserve.
D) prices and wages are inﬂexible downward.

Question

Quizplus · Accepted Answer

Monetarists and rational expectations theorists both advocate for the Federal Reserve to adhere to a monetary rule, such as targeting a specific rate of growth in the money supply. This is believed to provide a stable framework for economic growth and limit the potential for inflation. The other options are not necessarily agreed upon by both groups. B is generally true, but not universally accepted. C is a misunderstanding of how the money supply is measured and controlled. D is rejected by rational expectations theorists who believe that prices and wages can adjust quickly to changes in economic conditions.

Monetarists and Rational Expectations Theorists Generally Agree That