When a central bank sets a target for the interest rate, it commits itself to which of the following?
A)revealing its target to the public
B)adjusting the demand for money in order to make the equilibrium in the money market hit that target
C)adjusting the money supply in order to meet the interest rate target
D)having to make open-market sales

Question

Quizplus · Accepted Answer

When a central bank sets a target for the interest rate, it commits itself to adjusting the money supply in order to meet the interest rate target. This is done through open market operations, where the central bank buys or sells government bonds in its efforts to influence the money supply and interest rates. Adjusting the demand for money (B) is not the direct responsibility of the central bank, and while revealing the target to the public (A) is common practice, it is not a commitment the central bank is required to make. Open-market sales (D) may be necessary to achieve the interest rate target, but it is not necessarily a commitment the central bank makes when setting the target.

When a Central Bank Sets a Target for the Interest