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

question 2

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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