The policy rule recommended by monetarists is that the money supply should be increased at the same rate as the potential growth in:
A) Real GDP
B) Population
C) The level of prices
D) The velocity of money

Question

Quizplus · Accepted Answer

Monetarists believe that the long-run sustainable economic growth is determined by the growth of the economy's productive capacity, which is reflected in the potential growth rate of real GDP. According to them, if the money supply grows faster than this rate, it will lead to inflation, and if it grows slower, it will lead to deflation and recession. Therefore, to achieve long-run price stability and economic growth, the money supply should increase at the same rate as the potential growth in real GDP.

The Policy Rule Recommended by Monetarists Is That the Money