The reduced form approach ________ the way monetary policy affects the economy and may be ________ likely to spot the full effect of changes in M on Y.
A) does not restrict; more
B) restricts; more
C) does not restrict; less
D) restricts; less

Question

Quizplus · Accepted Answer

The reduced form approach does not make any assumptions about the underlying structure of the economy and therefore does not restrict the way monetary policy affects the economy. This makes it more likely to capture the full effect of changes in the money supply (M) on output (Y).

The Reduced Form Approach ________ the Way Monetary Policy Affects