If velocity is highly unstable,then targeting the money supply
A)will be effective in stabilizing the LM curve and interest rates.
B)has the same effects as targeting interest rates.
C)will be ineffective in stabilizing aggregate demand.
D)none of the above.

Question

Quizplus · Accepted Answer

If velocity is highly unstable, targeting the money supply would be ineffective in stabilizing aggregate demand because changes in the money supply will not have a predictable effect on spending. In this case, other tools such as fiscal policy may be more effective in stabilizing the economy.

If Velocity Is Highly Unstable,then Targeting the Money Supply