Why doesn't the Fed have both a money supply target and an interest rate target?
A)Short-term interest rates do not respond to changes in the money supply,which the Fed can control.
B)The Fed does not control money demand.
C)The Fed cannot offset the impact of changes in cash management by the public or changes in lending policies of commercial banks on the money supply.
D)Only the level of interest rates matters when we consider rates of growth in real GDP,employment,and rates of price inflation.

Question

Quizplus · Accepted Answer

The Fed cannot simultaneously target both the money supply and interest rates because it does not control money demand. Changes in money demand can affect interest rates if the Fed targets the money supply, and vice versa. Therefore, the Fed typically chooses one target to focus on.

Why Doesn't the Fed Have Both a Money Supply Target