Which of the Following Statements Is Correct

question 18

Multiple Choice

Which of the following statements is correct?

• A)The Fed exercises complete control over the money supply, but only partial control over the real interest rate.
• B)The Fed exercises complete control over the real interest rate, but only partial control over the money supply.
• C)The Fed exercises complete control over both the real interest rate and the money supply.
• D)The Fed exercises complete control over neither the real interest rate nor the money supply.

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Definitions:

Consumer Price Index

An index that measures the change in price level of a market basket of consumer goods and services purchased by households.

Real Interest Rate

The interest rate that has been modified to account for inflation, showing the real cost of borrowing or the genuine investment return.

Fisher Effect

an economic theory proposing that the real interest rate is independent of monetary measures, especially the nominal interest rate and inflation rate.

Nominal Interest Rate

The rate of interest before adjustment for inflation; the stated or advertised interest rate on a loan or investment.