Question

The market monetarist 5-percent target for nominal GDP growth and the older, simpler monetary rule advocated by Milton Friedman

a. both rely on the equation of exchange, but the monetary rule advocated by Friedman is more flexible.
b. both rely on monetary policy, but the monetary rule advocated by Friedman is not adaptable to changing economic conditions.
c. are virtually the same.
d. have both been discredited by economic events.

Answer 1

Milton Friedman's constant monetary growth rule advocates for a steady 3% increase in money supply per year, while the market monetarist approach allows for more flexibility to adapt to economic changes by targeting nominal GDP growth.

Step-by-step explanation:

The market monetarist 5-percent target for nominal GDP growth and Milton Friedman's constant monetary growth rule differ in their adaptability to changing economic conditions. Friedman's rule, based on his advocacy in the 1970s, suggested that the central bank should increase the money supply at a constant 3% rate per year.

His rationale was that such a steady rate would align with the real economy's growth over time and reduce the central bank's potential to create economic instability due to excessive intervention or response to political pressures. In contrast, the market monetarist approach seeks to target nominal GDP growth, which can imply changes in the monetary growth rate in response to the changing economic environment, making it more flexible than Friedman's fixed rate.

However, there are some differences between the two. The monetary rule advocated by Friedman is more flexible, allowing for adjustments to changing economic conditions, while the market monetarist target is a fixed percentage.