Monetarists argue that setting a specific target for money supply is the best policy because:
A) there are no lags in policy making.
B) the central bank does not make the target publicly available.
C) changes in interest rates can take up to 18 months to work their way through the
Economy.
D) the velocity of money is not predictable.

Question

Quizplus · Accepted Answer

Monetarists argue that targeting a specific money supply is effective because changes in interest rates can take a long time to have an impact on the economy, while setting a money supply target can have a more immediate effect on inflation and economic growth. However, there may be lags in policy implementation and the velocity of money may not always be predictable. Therefore, option C is the best answer as it highlights a key advantage of targeting money supply.

Monetarists Argue That Setting a Specific Target for Money Supply