Any value of the nominal interest rate chosen by the Federal Reserve implies a specific value for ______.
A) potential output
B) the money supply
C) government purchases
D) the budget deficit

Question

Quizplus · Accepted Answer

The nominal interest rate chosen by the Federal Reserve affects the cost of borrowing and lending money and thus influences the demand and supply of money in the economy. The money supply refers to the total amount of money available in the economy, which is influenced by the Federal Reserve's monetary policy decisions, including changes in the nominal interest rate. Therefore, the correct answer is B. Potential output, government purchases, and the budget deficit are not directly affected by changes in the nominal interest rate.

Any Value of the Nominal Interest Rate Chosen by the Federal