The Fed Prefers to Focus on the Interest Rate Rather

question 94

Multiple Choice

The Fed prefers to focus on the interest rate rather than growth in the money supply because

• A)it does not like to conduct open market operations.
• B)the money supply is too unpredictable.
• C)it makes inflation more predictable.
• D)money demand is too volatile.
• E)it is easier to fix the interest rate than maintain growth in the money supply.

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Definitions:

Variable Input

Any production input that can be varied in the short term to increase or decrease output, such as labor or raw materials.

Output

The total amount of goods or services produced by a company or country.

Marginal Product Curve

A graphical representation showing how the additional output of a firm varies with the addition of one more unit of a variable input, holding all other inputs constant.

Total Product

The overall quantity of output that a firm produces, usually specified in relation to a given quantity of inputs.