The correct option for central point of monetarism
Answer to Problem 2MCQ
From the available options, the correct option is the Fed should follow a
Explanation of Solution
Monetarism specifies that Business cycles and changes in the money supply are related but business cycles not relate with money demand. In business cycle, the monetary policy includes stabilization of prices and wages to maintain a high rate of
Spending, investment and consumption level. According to this theory, the most important factors affecting the rate of economic development and the behavior of the business cycle are the changes in supply of money which means the Fed needs to follow a monetary policy rule.
Therefore, the correct option is d (Fed should follow a monetary policy rule) and all other options are incorrect.
Introduction: The main aim of monetary policy is to control the supply of money in an economy to achieve the targeted economic growth. And according to monetarists, money supply is the large source that guide the economic development or growth in the country.
Chapter 35 Solutions
Krugman's Economics For The Ap® Course
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