Under the policy of interest rate targeting adopted by the Federal Reserve in the 1990s, the money supply is:
A)increased at a constant rate.
B)decreased at a constant rate.
C)held constant.
D)allowed to fluctuate.

Question

Quizplus · Accepted Answer

Under the policy of interest rate targeting, the Federal Reserve sets a target for the federal funds rate and adjusts the supply of reserves in the banking system in order to achieve that target. This means that the money supply is allowed to fluctuate in response to changes in demand for reserves from banks. Therefore, choice D is the correct answer.

Under the Policy of Interest Rate Targeting Adopted by the Federal