In the early 1970s monetary growth was relatively stable yet unemployment and prices were quite unstable.This suggests that
A)policy activism is superior to policy rules.
B)government spending must have been destabilizing.
C)monetary rules will not iron out every short-run fluctuation resulting from shocks.
D)the government was following a monetary rule.

Question

Quizplus · Accepted Answer

The fact that monetary growth was stable, yet unemployment and prices were volatile, suggests that short-run fluctuations resulting from external shocks cannot be completely eliminated through monetary rules alone. This indicates that policy activism, or the use of discretionary policy measures, is necessary to respond to unexpected events and stabilize the economy. Additionally, there may have been other factors such as government spending that contributed to the instability. The information given does not provide any evidence for choice A or D.

In the Early 1970s Monetary Growth Was Relatively Stable Yet