If the ________ curve is relatively more unstable than the ________ curve,an interest rate target is preferred.
A)IS;IS
B)IS;LM
C)LM;IS
D)LM;LM

Question

Quizplus · Accepted Answer

If the LM curve is relatively more unstable than the IS curve, it indicates that changes in the money supply have a greater impact on interest rates than changes in real income. In such a situation, an interest rate target is preferred over a money supply target because it provides more control over interest rates. Choice A is incorrect because both curves being unstable would not provide a clear indication of which target is preferred. Choice B is also incorrect because the LM curve being stable and the IS curve being unstable would suggest that a money supply target is more preferable. Choice D is incorrect because both LM curves being unstable would not provide a clear indication of which target is preferred.

If the ________ Curve Is Relatively More Unstable Than the ________

If the Curve Is Relatively More Unstable Than the