A rules-based approach to monetary policy is likely to be more effective when the velocity of money is:
A) volatile.
B) zero.
C) stable.
D) equal to the inflation rate.

Question

Quizplus · Accepted Answer

A rules-based approach is more likely to be effective when the velocity of money is stable because it allows for more predictable and consistent outcomes. If the velocity of money is volatile, it becomes harder to accurately forecast the impact of interest rate changes on the economy. If the velocity of money is zero, then monetary policy would have no effect on economic activity. And if the velocity of money is equal to the inflation rate, then the impact of monetary policy on the economy could be ambiguous.

A Rules-Based Approach to Monetary Policy Is Likely to Be