Although real variables such as unemployment and real GDP are the best measures of economic performance, most economists do not advocate manipulating money supply directly to hit a real target because:
A) they believe a constant growth rate of the money supply is the best way to stabilize real GDP or unemployment.
B) if the Fed chose a target that was not natural output or the natural unemployment rate, the result would be accelerating inflation or deflation.
C) if the Fed chose a target for the unemployment rate above the natural rate, the result would be accelerating inflation.
D) if the Fed chose a target for the unemployment rate below the natural rate, the result would be accelerating deflation.

Question

Quizplus · Accepted Answer

Choosing a real target other than natural output or the natural unemployment rate could lead to unintended consequences such as accelerating inflation or deflation. Therefore, most economists advocate for a constant growth rate of the money supply rather than directly manipulating it to hit a real target.

Although Real Variables Such as Unemployment and Real GDP Are