Which of the following statements is least likely to be true?
A) By targeting the growth in the money supply, the government will be more successful in keeping inflation low if the demand for money becomes volatile.
B) Targeting the growth in the money supply will be more successful in keeping inflation low if the velocity of money is stable.
C) The demand for money influences the velocity of money.
D) A rules-based approach to monetary policy will be less effective when the demand for money is volatile.

Question

Quizplus · Accepted Answer

A) is least likely to be true because if the demand for money becomes volatile, targeting the growth in the money supply alone may not be effective in keeping inflation low. The effectiveness of targeting the money supply depends on the predictability of the demand for money and the velocity of money. If the demand for money is volatile, it becomes more challenging to control inflation through money supply targeting alone.

Which of the Following Statements Is Least Likely to Be