Author Question: Explain why the Fed must choose between targeting the money supply or targeting interest rates when ... (Read 119 times)

panfilo · **on:** Jun 30, 2018

Explain why the Fed must choose between targeting the money supply or targeting interest rates when money demand increases.

Question 2

The reason why public subsidization of industries in less-developed countries causes slow economic growth is that:
a. when companies face no competition, there is no incentive for them to improve their production.
b. too much of the taxpayer's money is spent in these programs.
c. consumers tend to develop an aversion for the purchase of subsidized goods and services.
d. subsidies tend to create too much competition for products.
e. subsidization creates shortage in the product market.

Anton · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

If the money supply target is maintained when money demand increases, interest rates must rise; if an interest rate target is maintained when money demand increases, the money supply must increase. Targeting the money supply is therefore inconsistent with targeting interest rates.

Answer to Question 2

a