Targeting reserves would be the best choice if

Question

Quizplus · Accepted Answer

Targeting reserves would be the best choice if there is a close and predictable relationship between bank reserves and total spending. This is because changes in bank reserves can have a direct impact on the ability of banks to lend and the amount of money in circulation, making it an effective tool for controlling the money supply and stabilizing the economy. If the relationship between reserves and spending is unpredictable or private sector spending is highly volatile, other tools such as open market operations or changes in the discount rate may be more effective.

Targeting Reserves Would Be the Best Choice If