When a Central Bank Sets a Target for the Interest

question 107

Multiple Choice

When a central bank sets a target for the interest rate, what does it commit itself to?

• A) revealing its target to the public
• B) adjusting the demand for money in order to make the equilibrium in the money market hit that target
• C) adjusting the money supply in order to meet the interest-rate target
• D) having to make open-market sales

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Definitions:

Marginal Revenue

The additional income earned from selling one more unit of a good or service, crucial for decision-making on output levels.

Unit Elastic

A situation in economics where a change in the price of a product leads to a proportional change in the quantity demanded or supplied, resulting in an elasticity of exactly one.

Tax

A compulsory financial charge or levy imposed by a government on individuals or businesses to fund public expenditures.

State Government

The government of a specific state within a country, which operates under that country's constitution to manage local laws and regulations.