Monetarists argue that:
A) the Bank of Canada should allow the money supply to increase at a slow,steady annual rate.
B) since the velocity of money is unstable,a fixed annual increase in the money supply will exacerbate inflation in the long run.
C) self-correction is less effective than activist monetary policy.
D) fiscal policy should always be used before monetary policy.

Question

Quizplus · Accepted Answer

Monetarists argue that the Bank of Canada should allow the money supply to increase at a slow, steady annual rate. This is based on the Quantity Theory of Money, which suggests that changes in the money supply have a proportional effect on the level of prices in the economy. By controlling the rate of money supply growth, the Bank of Canada can ensure that inflation remains low and stable. Monetarists do not argue that a fixed annual increase in the money supply will exacerbate inflation in the long run, as stated in option B.

Monetarists Argue That