The Diagrams Below Illustrate Two Alternative Approaches to Implementing Monetary

question 92

Multiple Choice

The diagrams below illustrate two alternative approaches to implementing monetary policy.The economy begins in monetary equilibrium with the interest rate equal to 2% and the money supply equal to . FIGURE 28-1 Refer to Figure 28-1.One advantage of implementing monetary policy by targeting the interest rate as shown in part (i) ,rather than targeting the money supply as shown in part (ii) ,is that

• A)it is easier to get political support for changes in interest rates than for changes in the money supply.
• B)it is almost impossible to change the money supply without passing new legislation.
• C)the overall change in interest rates,and the resulting effect on aggregate demand,is more certain.
• D)changes in interest rates have a stronger impact on aggregate demand than do changes in the money supply.
• E)the position and slope of the money demand curve are known with certainty.

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