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.

Question

Quizplus · Accepted Answer

Monetarists believe that the effectiveness of monetary policy is dependent on the stability of velocity of money (the speed at which money changes hands in the economy). If velocity is stable, changes in the money supply will have a predictable impact on aggregate demand and inflation. Therefore, a constant velocity of money increases the effectiveness of monetary policy from a monetarist perspective. The liquidity trap and changing expectations can both reduce the effectiveness of monetary policy.

Which of the Following Increases the Effectiveness of Monetary Policy