If shifts in the money demand relationship occur frequently, targeting the money supply will lead to
A)higher interest rates.
B)lower interest rates.
C)money supply fluctuations that will destabilize the economy.
D)interest rate fluctuations that will destabilize the economy.

Question

Quizplus · Accepted Answer

If shifts in the money demand relationship occur frequently and the central bank targets the money supply, it will lead to interest rate fluctuations. This is because the central bank will keep the money supply constant despite changes in money demand, causing interest rates to adjust to equilibrate the money market. These fluctuations in interest rates can destabilize the economy by affecting investment and consumption decisions.

If Shifts in the Money Demand Relationship Occur Frequently, Targeting