(Last Word) Suppose That a Prediction Market for Nominal GDP

question 132

Multiple Choice

(Last Word) Suppose that a prediction market for nominal GDP is predicting 6 percent growth in nominal GDP, but the Fed's desired rate of nominal GDP growth is 5 percent.According to the market monetarist view, the Fed should

• A)employ a restrictive monetary policy until the predictions market adjusts nominal GDP growth predictions down to a 5 percent growth rate.
• B)employ an expansionary monetary policy until the predictions market adjusts nominal GDP growth predictions down to a 5 percent growth rate.
• C)do nothing, as the market will adjust itself.
• D)adhere to a strict monetary rule of 5 percent growth in the money supply.

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Definitions:

Budget Surplus

A financial situation where a government's or organization's revenue exceeds its expenditures over a given period.

Real Interest Rate

The interest rate adjusted for inflation, reflecting the true cost of borrowing and the true yield to lenders or investors.

Budget Surplus

The financial situation in which a government's revenues exceed its expenditures over a specified period of time.

Foreign-Currency Exchange

The process of exchanging one currency for another, enabling international trade and finance.