When the central bank targets the interest rate
A)the target interest rate must be changed eight times a year.
B)the money supply is sticky.
C)it does so by adjusting the money supply.
D)the money supply is fixed.
E)the money supply is reduced.

Question

Quizplus · Accepted Answer

When the central bank targets the interest rate, it does so by adjusting the money supply. This means that they will increase or decrease the amount of money in circulation in order to influence the interest rate to reach their desired target. The money supply is not fixed or reduced, but rather flexible in this scenario. The target interest rate may also be changed more or less than eight times a year depending on the central bank's decisions.

When the Central Bank Targets the Interest Rate