If the Fed had to choose between fixing the interest rate and fixing the supply of money,it would
A)always fix the money supply,so that the price level would be stable
B)always fix the money supply,so that spending would be stable
C)always fix the interest rate,so that investment would be stable
D)always fix the interest rate,so that demand for money would be stable
E)find neither alternative would be clearly better than the other

Question

Quizplus · Accepted Answer

The best choice would be neither alternative as both have potential drawbacks and limitations. Fixing the supply of money could lead to inflexibility in responding to changing economic conditions, while fixing the interest rate may not be effective in controlling inflation or promoting economic growth. The optimal approach for the Fed would be to use a combination of tools, such as adjusting the reserve requirement or conducting open market operations, to achieve its goals of price stability, full employment, and sustainable economic growth.

If the Fed Had to Choose Between Fixing the Interest