Show graphically and explain why targeting an interest rate is preferable when money demand is unstable and the IS curve is stable
What will be an ideal response?
See figure below.
Unstable money demand causes the LM curve to shift between LM' and LM". If the money supply is targeted, output fluctuates between Y' and Y". With an interest rate target, output remains stable at Y. Since the objective is to minimize output fluctuations, targeting the interest rate is preferable.
You might also like to view...
The labor force is defined as the number of people who
A) are employed plus the number of people who are unemployed. B) are available and looking for work but are unable to find employment. C) would like to have a job but have stopped seeking work. D) would like to have a full-time job but are working part time. E) are employed minus the number of people who are unemployed.
How might department stores best protect themselves against the risk of recession?
A) Buy insurance policies that pay off when a recession occurs. B) Stand ready to go out of business if a recession occurs. C) Sell goods that are complements to one another. D) Sell both substitute and complement goods. E) Sell both normal and inferior goods.
Economist Douglass North's definition of institutions:
A. includes laws enforced by the government as well as cultural norms. B. is the humanly devised constraints that shape human interactions. C. is the rules of the game in a society. D. All of these statements are true.
Refer to the information provided in Table 3.1 below to answer the question(s) that follow. Table 3.1Price per PizzaQuantity Demanded (Pizzas per Month)Quantity Supplied (Pizzas per Month)$31,200 600 61,000 700 9 800 80012 600 90015 4001,000Refer to Table 3.1. In this market there will be an excess supply of 600 pizzas at a price of
A. $3. B. $6. C. $12. D. $15.