Some economists argue that the Fed should commit to keeping $\vec { M }$ + $\vec { v }$ Fixed at a particular value, say 5%. How would this rule require the Fed to respond in the event of a negative spending shock? A negative real shock? A) increase $\vec{ M }$ ; do nothing B) increase $\vec { M }$ ; increase $\vec { M }$ C) increase $\vec{ M }$ ; decrease $\vec { M }$ D) decrease $\vec{ M }$ ; increase $\vec { M }$

Question

Quizplus · Accepted Answer

If $\vec { M }$ + $\vec { v }$ is fixed at 5%, then a negative spending shock would require the Fed to increase $\vec{ M }$ to offset the decline in spending. A negative real shock would also require the Fed to increase $\vec { M }$ to offset the decline in output.

Some Economists Argue That the Fed Should Commit to Keeping M⃗\vec { M }M

Some Economists Argue That the Fed Should Commit to Keeping $\vec { M }$