K-Percent Rule and Monetary Mistakes

Friedman felt that monetary policy was a key factor in the economy’s cyclical swings. Trying to fine-tune the economy by altering monetary policy in response to economic conditions was risky because the consequences were unknown. Friedman claimed that the regulation would help prevent Federal Reserve officials from making errors. In the 1930s, for example, the Fed reduced the money supply in the US economy, exacerbating the depression.