(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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