Goodhart's Law suggests that ?
Correct answer: C. controlling one part of the money supply will merely result in that item becoming less important
- A. bad money drives out good
- B. monetary policy can only be effective if it is a long-term policy
- C. controlling one part of the money supply will merely result in that item becoming less important
- D. the money supply must only expand at the rate of growth of real national income
Explanation
Goodhart's Law states that once an economic measure becomes a target, people alter their behaviour so that the measure loses its usefulness. Thus, controlling one monetary aggregate may cause it to become less important or reliable as a guide.
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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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