Which statement reflects the monetarist view on discretionary monetary policy?

• A. Discretionary monetary policy can affect inflation.
• B. Discretionary monetary policy often does more harm than good.
• C. Fiscal policy is irrelevant.
• D. Discretionary monetary policy is always beneficial.

Answer: (B)

Discretion in monetary policy often leads to destabilizing outcomes, which is a core concern of monetarists. They argue that trying to fine-tune the economy with ad hoc policy—changing the money supply or interest rates in response to short-run conditions—creates misperceptions and lags that make inflation and output more volatile over time. People form expectations about future money growth, and policy actions can be mis-timed or influenced by political pressures, producing higher inflation without delivering reliable real gains.

So, the statement that best fits this view is that discretionary monetary policy often does more harm than good. It captures the idea that the costs of discretion—timing errors, expectation shifts, and instability—tend to outweigh the benefits, pushing policymakers toward a steady, rule-based approach (like a predictable growth path for the money stock) to keep inflation anchored.

The other options miss the core point: while monetary policy can affect inflation, the emphasis in the monetarist critique is on the harms of discretion itself, not just the potential for inflation. Saying fiscal policy is irrelevant ignores the broader policy discussion monetarists engage in, and claiming discretion is always beneficial contradicts the monetarist skepticism about stabilizing outcomes from discretionary moves.