Which of the following statements is true?
A)The money supply and interest rates can be successfully targeted simultaneously.
B)The money supply and interest rates cannot be successfully targeted simultaneously.
C)Increases in the demand for money will cause interest rates to fall if the money supply is held constant.
D)Increases in the demand for money will require the Fed to decrease the money supply to maintain an interest rate target.

Question

Quizplus · Accepted Answer

The money supply and interest rates are inversely related in the short run, and targeting one typically means the other must adjust. Central banks, like the Federal Reserve, often choose to target either the money supply or interest rates, but cannot fix both simultaneously due to the liquidity preference theory and the money market equilibrium.

Which of the Following Statements Is True