If a central bank is following a policy of fixing an interest rate at a constant value, then, if the economy expands, the bank will respond by
A) shifting the demand for money to the left.
B) shifting the demand for money to the right.
C) shifting the supply of money to the left.
D) shifting the supply of money to the right.

Question

Quizplus · Accepted Answer

To maintain a fixed interest rate during an economic expansion, a central bank would increase the supply of money. This action shifts the supply curve of money to the right to counteract the increased demand for money that typically accompanies economic growth, thereby stabilizing the interest rate.

If a Central Bank Is Following a Policy of Fixing