Interest Rate Targeting May Be Problematic When

question 2

Multiple Choice

Interest rate targeting may be problematic when

• A) the central bank cannot distinguish shocks to money supply from shocks to money demand.
• B) there is a large fraction of borrowers in the economy.
• C) the central bank cannot distinguish shocks to money demand from shocks to total factor productivity.
• D) there is a large fraction of lenders in the economy.
• E) the central bank engages in open market operations.

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Definitions:

Discontinuous

Characterized by interruptions or gaps, not having a steady or unbroken progression.

Multidimensional

Characterized by involving or having several dimensions or aspects.

Nature

The phenomena of the physical world collectively, including plants, animals, the landscape, and other features and products of the earth, as opposed to humans or human creations.

Maturational Processes

Biological or physiological developments that follow a predetermined sequence over an individual's life.