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:

Profit-Maximizing Output

The level of production at which a company can achieve the highest level of profit based on its costs and the market price.

Profit-Maximizing Price

The price at which a company can sell its product or service to maximize its profit, considering demand and cost.

Demand Curve

A graph that shows the relationship between the price of a good and the quantity of that good consumers are willing to purchase at various prices.

Natural Monopolist

A natural monopolist is a single supplier in a market that can produce the total quantity of a good or service demanded at a lower cost than if there were multiple suppliers, due to high fixed costs and economies of scale.