The Friedman rule works because

Question

Quizplus · Accepted Answer

The Friedman rule argues that monetary policy should aim for a zero nominal interest rate to encourage people to hold the appropriate quantity of money. This is because when there is inflation and interest rates are positive, people have an incentive to hold less money and more interest-earning assets, leading to overconsumption and inefficient allocation of resources. By encouraging people to hold the appropriate quantity of money, the economy can avoid these inefficiencies.

The Friedman Rule Works Because