Given a Monetary Policy That Targets the Monetary Base, the Appropriate

question 9

Multiple Choice

Given a monetary policy that targets the monetary base, the appropriate LM representation shows

• A) a stationary LM curve with the real interest rate climbing with GDP to keep the demand for money in line with the supply.
• B) a horizontal line at the equilibrium rate of interest, indicating little or no sensitivity of the real rate to changes in GDP.
• C) the real interest rate falling, as GDP climbs, to keep the demand for money in line with the supply.
• D) a nearly vertical line above the level of GDP associated directly with the target base and invariant to changes in the interest rate.
• E) none of the above.

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