The Federal Reserve does not target both the money supply and an interest rate because
A)it would be too confusing to Wall Street and would disrupt the financial markets.
B)it would be too easy for Wall Street to determine what policy the Fed is following and this would destabilize the economy.
C)it would be illegal according to the Federal Reserve Act.
D)the Fed cannot achieve a target for both the money supply and an interest rate at the same time.

Question

Quizplus · Accepted Answer

The Fed cannot achieve a target for both the money supply and an interest rate at the same time due to the complex relationship between them. As the Fed changes the money supply, interest rates will also be affected, making it difficult to hit both targets simultaneously. Therefore, the Fed typically chooses to target only one of these variables to achieve their goals.

The Federal Reserve Does Not Target Both the Money Supply