Milton Friedman would eliminate the destabilizing effect of the Federal Reserve's monetary policy by
A)eliminating the Federal Reserve.
B)removing the Federal Reserve's political independence.
C)requiring that the Federal Reserve choose a monetary aggregate and increase it at a fixed percentage rate each year.
D)eliminating the Federal Reserve's right to carry out open-market operations.

Question

Quizplus · Accepted Answer

Milton Friedman believed in the quantity theory of money, according to which the quantity of money in the economy should grow at a stable rate closely related to the growth rate of the economy. To achieve this, he recommended that the Federal Reserve should be required to choose a monetary aggregate such as M2 or M3 and increase it at a fixed percentage rate each year. This would eliminate the destabilizing effect of the Federal Reserve's discretionary monetary policy and help maintain price stability. Friedman believed that this rule-based approach would also make the Fed more accountable and transparent, as it would have to justify any deviations from the chosen monetary growth path to the public.

Milton Friedman Would Eliminate the Destabilizing Effect of the Federal