Assuming that the central bank is following a money stock targeted,an exogenous rise in investment demand
A)causes income to rise but the money stock has to be increased to accommodate the expansion.
B)has to be accommodated with open market purchases to expand the money stock.
C)increases income,money demand,and lowers the interest rate.
D)increases income and money demand and lowers the interest rate.
E)none of the above.

Question

Quizplus · Accepted Answer

An exogenous rise in investment demand under a money stock targeted regime would not necessarily require the central bank to adjust the money stock, as the central bank's primary goal is to maintain a specific money supply level. Choices A and B suggest active adjustments by the central bank, which contradicts the premise of a money stock target. Choices C and D imply a lowering of the interest rate, which is not a direct consequence of a money stock targeting policy, especially since the policy's focus would not automatically adjust interest rates in response to changes in investment demand.

Assuming That the Central Bank Is Following a Money Stock