If the economy's real output is growing by 2.5 percent a year, then in order to maintain price stability a monetarist would most likely recommend that money supply should be:
A) Held constant
B) Decreased by 1 percent a year
C) Increased by 2.5 percent a year
D) Increased by 7.5 percent a year

Question

Quizplus · Accepted Answer

A monetarist would recommend increasing the money supply by the same rate as real output growth, 2.5 percent, to maintain price stability and avoid inflation or deflation.

If the Economy's Real Output Is Growing by 2