Monetarists reject using discretionary monetary policy as an effective stabilization tool because they believe:
A) if the money supply grows at a rate equal to the economy's long-run rate of economic growth, then the economy will be unstable.
B) that changes in the money stock do not affect output or prices.
C) the Fed will miss its money supply targets and make the economy worse.
D) monetary policy can stimulate aggregate demand, but it cannot affect inflation.

Question

Quizplus · Accepted Answer

Monetarists, such as Milton Friedman, argue that the Federal Reserve (or any central bank) often makes timing and magnitude errors when trying to control the money supply through discretionary monetary policy. They believe these errors can exacerbate economic fluctuations rather than stabilize them, hence their preference for a rule-based approach to monetary policy, such as keeping the money supply growth rate constant.

Monetarists Reject Using Discretionary Monetary Policy as an Effective Stabilization