In recent years, a monetary growth rule has fallen out of favour because
A)it is believed that active monetary policy destabilizes the economy and makes the business cycle worse.
B)the growth rate of GDP has been highly unstable.
C)the relationship between movements in M1+ and movements in real GDP has become weaker.
D)the growth rate of M1+ has become more stable.
E)the ability of central banks to predict recessions has increased.

Question

Quizplus · Accepted Answer

A monetary growth rule is based on the assumption that changes in the money supply are directly related to changes in real GDP. However, in recent years, the relationship between movements in M1+ (a measure of the money supply) and movements in real GDP has become weaker. As a result, a monetary growth rule has fallen out of favour.

In Recent Years, a Monetary Growth Rule Has Fallen Out