Given the equation of exchange, MV = PY, when central bankers control short-term nominal interest rates by adjusting the level of reserves in the banking system, their actions are expected to primarily affect:
A) the rate of growth of V.
B) the value of V.
C) potential Y as opposed to current Y.
D) the rate of growth of M.

Question

Quizplus · Accepted Answer

Central bankers control short-term nominal interest rates by adjusting the level of reserves in the banking system, which directly affects the money supply (M). This action influences the rate of growth of M, as changes in the banking system's reserves can either expand or contract the amount of money available in the economy.

Given the Equation of Exchange, MV = PY, When Central