When a central bank targets interest rates, it adopts a policy to adjust ________ to accommodate ________.
A) money supply; money demand shocks
B) money supply; tax changes
C) money demand; government debt
D) interest rates; money supply
E) money demand; money supply shocks

Question

Quizplus · Accepted Answer

A central bank targeting interest rates typically adjusts the money supply to accommodate changes or shocks in money demand, ensuring that its target interest rates are achieved. This involves actions like open market operations to influence the amount of money circulating in the economy.

When a Central Bank Targets Interest Rates, It Adopts a Policy