Asked by Donald R. Johnson on May 14, 2024
Verified
The monetarists believe that an increase in the money supply of about 4% per year,regardless of economic conditions,is a good monetary policy.Why was 4% chosen?
A) It reflects the fact that the output of the economy has been growing at about 3 to 4% per year,and a 4% increase in the money supply would tend to stabilize the price level.
B) By equating the money supply growth rate and the unemployment rate,the monetarists believe that the output of the economy will increase.
C) By restricting the increase in money supply to 4%,the monetarists hope to limit fluctuations in the price trend to 4% and stabilize velocity.
D) Price fluctuations have been shown to be historically more than 4%.By a steady 4% increase in the money supply,the monetarists hope to drive prices down.
Money Supply
The sum of financial resources present within an economy at any given moment.
Economic Conditions
The state of the economy at a given time, including factors such as GDP, unemployment rates, and inflation.
- Identify the differences in economic policies recommended by diverse schools of economics.
- Recognize the effect of monetary supply fluctuations on inflationary trends and economic equilibrium.
Verified Answer
DA
Derek AndrewMay 15, 2024
Final Answer :
A
Explanation :
The 4% increase in the money supply was chosen because it reflects the historical trend of economic growth of about 3 to 4% per year, and a corresponding increase in the money supply would help stabilize the price level.
Learning Objectives
- Identify the differences in economic policies recommended by diverse schools of economics.
- Recognize the effect of monetary supply fluctuations on inflationary trends and economic equilibrium.