If the central bank announces that it is going to increase the money supply by 6 per cent this year, it is following:
A) a demand-based approach.
B) a discretionary monetary policy.
C) a discretionary fiscal policy.
D) a monetarist approach.

Question

Quizplus · Accepted Answer

The central bank's decision to increase the money supply by 6 per cent is following a monetarist approach. Monetarist theory suggests that changes in the money supply have a direct effect on inflation and economic growth. By increasing the money supply, the central bank aims to stimulate economic activity and increase liquidity in the market. This decision is not based on demand or discretionary fiscal policies, as it is determined by the central bank's control over the money supply.

If the Central Bank Announces That It Is Going to Increase