Which of the following increases the effectiveness of monetary policy from a monetarist perspective?
A)The liquidity trap.
B)The constant velocity of money.
C)Changing expectations.
D)Unresponsive investment demands.

Question

Quizplus · Accepted Answer

Monetarists believe that the effectiveness of monetary policy depends on the stability of the velocity of money, or the rate at which money changes hands in the economy. If the velocity of money is constant, then changes in the money supply will have predictable effects on aggregate demand and inflation. Therefore, a constant velocity of money would increase the effectiveness of monetary policy from a monetarist perspective. The liquidity trap, changing expectations, and unresponsive investment demands all hinder the effectiveness of monetary policy.

Which of the Following Increases the Effectiveness of Monetary Policy