If the Fed targets the interest rate,then:
A)the money supply will grow at a more controlled rate.
B)monetary policy will reinforce fluctuations in economic activity.
C)the price level will be more stable in the long run.
D)money demand will be more stable.
E)velocity will be less stable.

Question

Quizplus · Accepted Answer

When the Fed targets the interest rate, it adjusts the money supply to maintain that target rate. This can lead to reinforcing fluctuations in economic activity because in times of economic boom, the Fed might lower interest rates to prevent overheating, which can further boost economic activity, and in times of recession, it might reduce rates to stimulate the economy, potentially leading to more pronounced cycles.

If the Fed Targets the Interest Rate,then