Why Doesn't the Fed Have Both a Money Supply Target

question 210

Multiple Choice

Why doesn't the Fed have both a money supply target and an interest rate target?

• A)Short-term interest rates do not respond to changes in the money supply,which the Fed can control.
• B)The Fed does not control money demand.
• C)The Fed cannot offset the impact of changes in cash management by the public or changes in lending policies of commercial banks on the money supply.
• D)Only the level of interest rates matters when we consider rates of growth in real GDP,employment,and rates of price inflation.

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Definitions:

Epinephrine

Also known as adrenaline, it is a hormone and medication that plays a key role in the body's fight-or-flight response by increasing blood flow to muscles, output of the heart, pupil dilation, and blood sugar.

Endorphins

Neurotransmitters produced in the brain that act as natural painkillers and are also associated with feelings of pleasure.

GABA

Gamma-Aminobutyric acid, an inhibitory neurotransmitter in the brain that reduces neuronal excitability throughout the nervous system.

Hypnosis

A trance-like state of focused attention and heightened suggestibility, with diminished peripheral awareness, often used for therapeutic purposes.