Why doesn't the Fed have both a money supply target and an ...

[jlmhmf]

Why doesn't the Fed have both a money supply target and an interest rate target?
 
  A) The Fed does not control money demand.
  B) Short-term interest rates do not respond to changes in the money supply, which the Fed can control.
  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.

Question 2

What is meant by optimization? How does optimization by levels differ from optimization by differences?
 
  What will be an ideal response?

[moormoney]

Answer to Question 1

A

Answer to Question 2

Optimization is the process that describes almost all of the choices that people, households, businesses, and governments make. Since resources are scarce, people need to make choices. Choices involve tradeoffs. Optimization involves studying these tradeoffs and making the best possible choice. Optimization in levels analyzes the total net benefit of different alternatives while optimization in differences analyzes the change in net benefits when you switch from one alternative to another. Optimization in levels and optimization in differences always yield the same answer.

[jlmhmf]

Thank you

[moormoney]

Happy to help you