In the context of monetary economics, the 'Friedman Rule' recommends that:
A. Money growth should equal the growth of real output plus inflation
B. Only fiscal policy should be used
C. The nominal interest rate should be set to zero
D. The nominal interest rate should be set equal to the real interest rate plus inflation
Answer: Option C
Solution (By JKSSB Mock Tests)
The Friedman rule states that the optimal monetary policy sets the nominal interest rate to zero so that the opportunity cost of holding real money balances equals the social cost of producing them (approximately zero).
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