Monetarists maintain that the Bank of Canada should

Question

Quizplus · Accepted Answer

Monetarists recommend that the central bank should follow a monetary rule that specifies a consistent annual growth rate in the money supply, usually determined by the rate of growth in real GDP and the desired inflation rate. This approach is believed to promote stability and predictability in the economy. Tightening monetary policy whenever a recession is anticipated (choice A) may worsen the recession by reducing aggregate demand. Adopting a variable monetary policy (choice B) may create uncertainty and instability in the economy. Letting the open market committee be in charge of all money supply changes (choice D) may lead to inconsistent policy decisions and lack of coordination between fiscal and monetary policy.

Monetarists Maintain That the Bank of Canada Should