In order to achieve the target for the nominal interest rate established by the monetary policy rule, the central banks adjusts:
A)the inflation rate.
B)the natural rate of interest.
C)the money supply.
D)the inflation target.

Question

Quizplus · Accepted Answer

The central bank adjusts the money supply in order to achieve the target for the nominal interest rate established by the monetary policy rule. By increasing or decreasing the money supply, the central bank can affect the market interest rates and move them towards the desired level. The inflation rate and target, as well as the natural rate of interest, may affect the central bank's decision to adjust the money supply, but they are not directly adjusted themselves.

In Order to Achieve the Target for the Nominal Interest