(Last Word) Suppose that a prediction market for nominal GDP is predicting 6 percent growth in nominal GDP, but the Fed?s desired rate of nominal GDP growth is 5 percent. According to the
Market monetarist view, the Fed should
A) employ a restrictive monetary policy until the predictions market adjusts nominal GDP growth predictions down to a 5 percent growth rate.
B) employ an expansionary monetary policy until the predictions market adjusts nominal GDP growth predictions down to a 5 percent growth rate.
C) do nothing, as the market will adjust itself.
D) adhere to a strict monetary rule of 5 percent growth in the money supply.

Question

Quizplus · Accepted Answer

Market monetarists believe in adjusting monetary policy to influence nominal GDP towards a target. If the prediction market expects higher nominal GDP growth than desired, a restrictive monetary policy would be used to slow down the growth to the target rate.

(Last Word) Suppose That a Prediction Market for Nominal GDP