What was Milton Friedman's reasoning behind the 3% growth rule for money supply?
A) monetary neutrality
B) increasing long-run economic growth rates
C) minimization of negative supply shocks
D) price stability

Question

Quizplus · Accepted Answer

Milton Friedman believed that the primary goal of monetary policy should be to achieve price stability. He proposed a 3% growth rule for the money supply as a means of achieving that goal. By limiting the growth of the money supply to 3%, Friedman believed that inflation could be kept in check and price stability could be maintained in the long run. Additionally, Friedman argued that excessive growth in the money supply can lead to economic instability and negative supply shocks. Therefore, the 3% growth rule was intended to balance the need for a stable and growing money supply with the need for price stability and long-term economic growth.

What Was Milton Friedman's Reasoning Behind the 3% Growth Rule