A monetary growth rule means that
A)the Fed will lower interest rates if it thinks a recession is on the horizon.
B)the Fed will raise interest rates if it thinks the economy is growing faster than potential.
C)the money supply should grow at a constant rate.
D)the money supply should grow in response to economic conditions.

Question

Quizplus · Accepted Answer

A monetary growth rule means that the money supply should grow at a constant rate. This approach is based on the belief that long-term price stability is best achieved by keeping the growth rate of the money supply in line with the potential growth rate of the economy. This helps to avoid the negative consequences of both excessive inflation and deflation.

A Monetary Growth Rule Means That