1) What policy rule do monetarists believe the Fed should follow? What are the major assumptions underlying this policy prescription?
2) What average annual inflation rate would a monetarist expect if the Fed maintained a growth rate of M2 = 10% per year for a three year period? (Assume that the monetarist felt that the long run average growth rate of RGDP was 3%)
Average annual inflation rate = 10-3 =7%