Fiscal policy is most effective when monetary policy is set to achieve A) ^{a money supply}^M1⁾^target. B) an interest rate target. C) a GDP target. D) either a money supply target or an interest rate target. E) either a money supply target or a GDP target.

Question

Quizplus · Accepted Answer

Fiscal policy is most effective when monetary policy targets an interest rate because it allows fiscal actions to influence aggregate demand without being offset by changes in interest rates.

Fiscal Policy Is Most Effective When Monetary Policy Is Set