Which of the following central bank policies would be pro-cyclical?
A) fixing an interest rate at a constant value
B) fixing the money supply at a constant value
C) inflation targeting
D) none of the above

Question

Quizplus · Accepted Answer

Fixing an interest rate at a constant value is pro-cyclical because it does not allow the interest rate to adjust to changes in the economy. This can lead to the economy overheating during expansions and contracting during recessions.

Which of the Following Central Bank Policies Would Be Pro-Cyclical