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The McCallum rule:

A)
sets the money supply growth rate equal to the target inflation rate plus real GDP growth plus velocity.

B)
suggests that money supply growth is triggered by changes in aggregate demand.

C)
adjusts rather slowly to changes in economic growth rates.

The McCallum rule adjusts rather slowly to changes in the business cycle because it is based on longer-term moving averages of the growth rates of real GDP and velocity. Based upon the money supply growth rate equation, the McCallum rule sets the money supply growth rate equal to the target inflation rate plus the 10-year moving average real GDP growth minus the 4-year moving average velocity growth rate.

Which alternative money policy strategy is negatively affected by fluctuations in the demand for money?

A)	Money supply growth rate targeting.

B)	Inflation targeting.

C)	Exchange rate targeting.

The primary drawback of targeting the growth rate of the money supply its that fluctuations in demand for money or the velocity of circulation result in interest rate swings and variability in the demand for goods and services.