If there is instability in the demand for commodities,

Question

Quizplus · Accepted Answer

If there is instability in the demand for commodities, a countercyclical money-supply policy can help stabilize the economy by adjusting the money supply in response to changes in demand. However, this can lead to large swings in interest rates as the central bank tries to balance inflationary pressures with the need for economic growth. Thus, a countercyclical policy may cause interest rates to fluctuate more than a fixed interest rate policy, making option A incorrect. Option C is also incorrect because a fixed money supply policy does not allow for flexibility in responding to changes in demand, which can lead to economic instability. Option D is incorrect because a fixed money supply policy does not guarantee stable interest rates in the presence of changing demand for commodities.

If There Is Instability in the Demand for Commodities