If the LM curve is subject to wider fluctuations than the IS curve, the Federal Reserve could minimize GDP fluctuations by targeting

Question

Quizplus · Accepted Answer

If the LM curve is subject to wider fluctuations than the IS curve, it indicates that changes in the interest rate have a stronger impact on the economy than changes in income. Therefore, the Federal Reserve can minimize GDP fluctuations by targeting the interest rate through monetary policy. By adjusting the money supply and influencing short-term interest rates, the Fed can stabilize the economy and promote growth. This is known as targeting the "nominal anchor." However, it is worth noting that the Fed also takes into account other economic indicators, such as inflation and employment, when making these decisions.

If the LM Curve Is Subject to Wider Fluctuations Than