A rule specifying a constant rate of growth of M1 during the early 1980s
A)was adopted in the United States, but not in Japan.
B)would have resulted in greater inflation than actually occurred.
C)would have resulted in a more contractionary policy than the one the Fed actually pursued.
D)was dropped following an acceleration in the inflation rate.

Question

Quizplus · Accepted Answer

A rule specifying a constant rate of growth of M1 during the early 1980s would have resulted in a more contractionary policy than the one the Fed actually pursued. This is because the Fed would have had to reduce the money supply to keep it at a constant rate of growth, which would have led to higher interest rates and a contractionary policy. The Fed did not adopt such a rule, and instead pursued a more flexible approach to monetary policy.

A Rule Specifying a Constant Rate of Growth of M1