Some economists argue that the Fed should commit to keeping $\vec{ M }$ + $\vec { v }$ fixed at a particular value,say 5%.How would this rule require the Fed to respond in the event of a negative spending shock? A negative real shock? A) increase $\vec{ M }$ ;do nothing B) increase $\vec { M }$ ;increase $\vec{ M }$ C) increase $\vec{ M }$ ;decrease $\vec{ M }$ D) decrease $\vec{ M }$ ;increase $\vec{ M }$

Question

Quizplus · Accepted Answer

A negative spending shock reduces velocity, so the Fed must increase the money supply to keep $\vec{ M }$ + $\vec { v }$ constant.

Some Economists Argue That the Fed Should Commit to Keeping M⃗\vec{ M }M

Some Economists Argue That the Fed Should Commit to Keeping $\vec{ M }$