If a Central Bank Targets the Interest Rate, What Does

question 103

Multiple Choice

If a central bank targets the interest rate, what does this imply?

• A) The central bank can then set the money supply at whatever value it wants.
• B) The central bank must increase the money supply if the interest rate is above its target.
• C) The central bank must decrease the money supply if the interest rate is above its target.
• D) The central bank must not change the money supply.

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Definitions:

Direct Observation

A qualitative research method involving the systematic watching and recording of behaviors, events, or phenomena in their natural settings.

Traditional Thinking

Traditional thinking refers to ideas and beliefs that are handed down from generation to generation, often resistant to change and rooted in historical and cultural precedents.

Sociological Thinking

The process of questioning the obvious, examining societal patterns, and considering the social context of behaviour.

Scientific Thinking

A method of inquiry that emphasizes empirical evidence, skepticism, and the systematic pursuit of knowledge through observation and experimentation.