Fluctuations in the demand for reserves cause the Fed to lose control over a monetary aggregate if the Fed targets
A)a monetary aggregate.
B)the monetary base.
C)an interest rate.
D)nominal GDP.

Question

Quizplus · Accepted Answer

When the Federal Reserve targets an interest rate, fluctuations in the demand for reserves can lead to a loss of control over a monetary aggregate. This is because to maintain the target interest rate, the Fed may need to supply more or fewer reserves to the banking system, which can change the amount of money in circulation.

Fluctuations in the Demand for Reserves Cause the Fed to Lose