The K-Percent Rule is a suggestion for a monetary policy, proposed by the economist Milton Friedman. It suggests that the central bank should increase the money supply by a constant percentage each year, and this percentage should be equal to the growth of gross domestic product (GDP).

Proponents of the K-Percent Rule contend that it would offer an effective tool to stabilize prices and minimize the effects of inflation and deflation. By increasing the money supply at the same rate as GDP growth, the K-Percent Rule can be seen as a way to keep prices relatively stable and prevent inflationary and deflationary cycles that can lead to economic instability.

Under the K-Percent Rule, the central bank would not allow the money supply to increase independently of the economic growth, reducing the probability of inflation or deflation. The benefits of the rule are dependent on the accuracy of the central bank’s predictions and their ability to respond quickly to changes in economic conditions.

Critics of the K-Percent Rule argue that it is a simplistic approach that does not account for the specific conditions of each country’s economy. In addition, it may be difficult for central banks to accurately predict the rate of GDP growth each year, which could lead to instability in the money supply. Lastly, the rule does not take into account other factors that may be affecting the economy, such as changes in global financial markets.

Overall, the K-Percent Rule is an interesting concept proposed by Milton Friedman that has its advocates and its skeptics. It has the potential to provide a way to keep prices stable and thus reduce macroeconomic instability, but it also has its drawbacks due to the difficulty of accurately predicting GDP growth and its failure to consider other factors which are affecting the economy. Ultimately, it is up to the central banks of each country to decide whether this rule is best for them or not.