Suppose it is the late 1970s, and the rate of price inflation is 12 percent. The Fed chairman, Paul Volker, seeks to permanently lower the rate of inflation (say, from 12 percent to 4 percent) by reducing the growth rate of the money supply. Which of the following actions would be consistent with this goal?
1) Increasing the growth rate of the money supply
2) Decreasing the growth rate of the money supply
3) Maintaining the current growth rate of the money supply
4) Implementing expansionary fiscal policy