A fundamental policy dilemma facing the monetary authorities is that:
A)banks are immune to monetary policy.
B)desired reserves and the bank rate cannot be changed simultaneously.
C)bank rate and open-market operations cannot be used simultaneously.
D)interest rates and the money supply cannot be stabilized simultaneously.

Question

Quizplus · Accepted Answer

Interest rates and the money supply have an inverse relationship, meaning that it is difficult to stabilize both simultaneously. If the central bank raises interest rates to combat inflation, it can lead to a decrease in the money supply and vice versa. This creates a policy dilemma as the central bank must decide which one to prioritize at any given time.

A Fundamental Policy Dilemma Facing the Monetary Authorities Is That