If the economy is characterized by a stable IS curve and an unstable LM curve,then ________ target produces ________ fluctuations in aggregate output.
A)an interest rate;larger
B)a money supply;smaller
C)a money supply;larger
D)an exchange rate;smaller

Question

Quizplus · Accepted Answer

Since the economy has a stable IS curve and an unstable LM curve, if the money supply is targeted, the LM curve can be stabilized which leads to larger fluctuations in aggregate output. Therefore, targeting a money supply produces larger fluctuations in aggregate output.

If the Economy Is Characterized by a Stable IS Curve