The guiding principle for the conduct of monetary policy that held that as long as loans were being made for "productive" purposes,then providing reserves to the banking system to make these loans would not be inflationary became known as the
A)free reserves doctrine.
B)Benjamin Strong doctrine.
C)efficient liquidity doctrine.
D)real bills doctrine.

Question

Quizplus · Accepted Answer

The guiding principle described in the question is known as the real bills doctrine. This doctrine, which was followed by central banks in the past, argued that as long as banks were lending for productive purposes, supplying them with reserves to make these loans would not be inflationary. This doctrine held that bank lending was self-regulating, as loans would only be made to creditworthy borrowers with profitable projects, and the resulting increase in economic activity would generate the income necessary to repay the loans.

The Guiding Principle for the Conduct of Monetary Policy That