The monetary policy rule suggests that:
A) we should follow the rules set by the Fed.
B) the Fed should follow the rules set by Congress.
C) the interest rate should grow at a slow and steady pace.
D) the money supply should grow at a slow and steady pace.

Question

Quizplus · Accepted Answer

The monetary policy rule suggests that the money supply should grow at a slow and steady pace. This ensures stability in the economy and avoids inflationary pressures. The Federal Reserve uses various tools to control the money supply, such as adjusting reserve requirements and open market operations. The interest rate, on the other hand, is a tool used by the Fed to influence borrowing and spending in the economy. While the interest rate may be indirectly affected by the money supply, it is not the primary focus of the monetary policy rule. Therefore, choices A, B, and C are incorrect.

The Monetary Policy Rule Suggests That