If the great majority of shocks to our system arise from unpredictable shocks to money demand,the preferred tactic of monetary policy is targeting
A)reserves.
B)interest rates.
C)M2.
D)reserves plus currency.

Question

Quizplus · Accepted Answer

If the great majority of shocks to our system arise from unpredictable shocks to money demand, targeting interest rates is likely the most effective tactic for monetary policy. This is because changes in interest rates can impact the demand for money, and in turn, affect the overall economy. Targeting reserves or M2 may not address the underlying issue of unpredictable money demand shocks.

If the Great Majority of Shocks to Our System Arise