The concept of the monetary policy rule is based on the assumption that:
A) discretionary fiscal policy crowds out investment spending.
B) the natural rate of unemployment is constant in the long run.
C) monetary policy lags are shorter than fiscal policy lags.
D) the velocity of money is constant in the short run.

Question

Quizplus · Accepted Answer

The concept of the monetary policy rule is based on the assumption that the velocity of money is constant in the short run. This assumption allows policymakers to use changes in the money supply to influence economic activity and stabilize the economy. However, in reality, the velocity of money can change, making it more difficult to implement monetary policy.

The Concept of the Monetary Policy Rule Is Based on the Assumption