Unlike a Money Supply Target,an Inflation Rate Target

question 27

Multiple Choice

Unlike a money supply target,an inflation rate target

• A)will always stabilize income better.
• B)will stabilize income better if velocity is unstable.
• C)still allows the Fed unlimited discretion.
• D)eliminates the need for a central bank.

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Definitions:

Federal Reserve

The central banking system of the United States, responsible for monetary policy, regulation of financial institutions, and maintaining stability in the financial system.

High Inflation

A condition where the general price levels of goods and services rise rapidly over a period, eroding purchasing power.

Money Supply

The complete collection of economic resources in money form available at a distinct period within an economy, which includes cash—both coins and notes—and amounts held in banking accounts for checking and savings.

Potential Output Level

The highest level of real gross domestic product (GDP) that can be sustained over the long term without increasing the rate of inflation.