Using the money supply as the exclusive intermediate target for policy purposes has fallen out of favor for all but which of the following reasons?
A) the velocity of money is unpredictable
B) the various monetary aggregates often send conflicting signals
C) the decision lag for setting money supply targets is too long
D) there is no reliable formula relating changes in interest rates to changes in the money supply
E) raising interest rates may reduce GDP rather than reducing inflation

Question

Quizplus · Accepted Answer

The decision lag for setting money supply targets is not typically cited as a reason for the decline in using the money supply as the exclusive intermediate target. Other factors, such as the unpredictability of the velocity of money, conflicting signals from different monetary aggregates, the lack of a reliable formula relating interest rates to money supply changes, and the potential for interest rate hikes to reduce GDP rather than inflation, are more commonly noted concerns.

Using the Money Supply as the Exclusive Intermediate Target for Policy