The best case for intermediate targeting on monetary aggregates is where the
A)LM schedule is flat and the money demand function is stable.
B)IS schedule is flat and the level of investment is stable.
C)LM schedule is steep and the money demand function is stable.
D)IS schedule is steep and the money demand function is stable.

Question

Quizplus · Accepted Answer

A steep LM schedule means that changes in the money supply have a bigger impact on interest rates and output. This makes intermediate targeting on monetary aggregates more effective. If the money demand function is also stable, it means that changes in money supply will lead to predictable changes in the target variable (such as nominal GDP or inflation), allowing for better control by the central bank.

The Best Case for Intermediate Targeting on Monetary Aggregates Is