If the money demand function is instable then ________.
A) velocity of money is unstable and monetary policy is more effective
B) monetary policy is ineffective
C) fiscal policy is more effective than monetary policy
D) neither fiscal nor monetary policy will impact aggregate output

Question

Quizplus · Accepted Answer

The correct answer is A because if the money demand function is unstable, then the velocity of money is also unstable. This makes monetary policy more effective because the central bank can use changes in the money supply to influence aggregate output more effectively.

If the Money Demand Function Is Instable Then ________