If the Fed Had to Choose Between Fixing the Interest

question 45

Multiple Choice

If the Fed had to choose between fixing the interest rate and fixing the supply of money,it would

• A)always fix the money supply,so that the price level would be stable
• B)always fix the money supply,so that spending would be stable
• C)always fix the interest rate,so that investment would be stable
• D)always fix the interest rate,so that demand for money would be stable
• E)find neither alternative would be clearly better than the other

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Definitions:

Compound Interest

Interest calculation on a loan or deposit where the interest earned also earns interest, leading to exponential growth over time.

Nearest Cent

Rounding a monetary amount to the closest cent, often used to simplify cash transactions.

Simple Interest

An interest calculation method where the interest charge is calculated only on the principal amount, without compounding.

Nearest Cent

Rounding a monetary amount to the closest one-hundredth of the currency unit, such as a dollar.