A rules-based approach to monetary policy is likely to be more effective when the velocity of money is:

Question

Quizplus · Accepted Answer

A stable velocity of money means that changes in the money supply will have a predictable effect on the economy, making a rules-based approach to monetary policy more effective. If the velocity of money is volatile, then changes in the money supply may have unexpected or unpredictable effects, which could make a rules-based approach less effective. If the velocity of money is zero, then changes in the money supply will have no effect on the economy, so a rules-based approach would be irrelevant. If the velocity of money is equal to or less than the inflation rate, then a rules-based approach may still be effective, but it would need to take into account the relationship between money supply, velocity of money, and inflation.

A Rules-Based Approach to Monetary Policy Is Likely to Be