In recent years,a monetary growth rule has fallen out of favor because
A)it is believed that active monetary policy destabilizes the economy and makes the business cycle worse.
B)the growth rate of GDP has been highly unstable.
C)the close relationship between movements in M1 and movements in real GDP has become weaker.
D)the growth rate of M1 has become more stable.

Question

Quizplus · Accepted Answer

The close relationship between movements in M1 (a measure of the money supply that includes cash and checking deposits) and movements in real GDP has weakened over time, making a monetary growth rule less effective as a policy tool. This is because the predictability of the impact of changes in the money supply on the economy has diminished, complicating the use of a fixed rule for monetary policy.

In Recent Years,a Monetary Growth Rule Has Fallen Out of Favor