As an example of the problem of using only the money supply as a leading indicator, during 1992 if M3 were used as the measure of the money supply rather than M1
A) monetary policy would have been deemed contractionary, deepening the 1990-92 recession.
B) monetary policy would have been deemed expansionary, resulting in short-term nominal interest rates of less than zero.
C) monetary policy would have been deemed neutral.
D) monetary policy would have been deemed expansionary, resulting in short-term real interest rates of less than zero.

Question

Quizplus · Accepted Answer

During 1992, M3 was growing more slowly than M1, which would have suggested a contractionary monetary policy stance, potentially worsening the recession.

As an Example of the Problem of Using Only the Money