Which of the following statements is correct with respect to monetary policy?
A) Targeting the money supply is likely to be more successful when the demand for money is volatile.
B) When the velocity of money is stable, targeting the money supply is likely to be completely ineffective.
C) Interest rates will always be stable if the central bank keeps the growth in the money supply stable.
D) Australia's very high rates of inflation in the early 1970s lead to the monetary targeting in terms of the growth of the monetary aggregate, M3.

Question

Quizplus · Accepted Answer

Australia experienced very high rates of inflation in the early 1970s, which led to the adoption of monetary targeting in terms of the growth of the monetary aggregate (M3). Targeting the money supply can be effective in controlling inflation when the monetary authority can control the money supply growth rate. However, targeting the money supply may not be effective when the demand for money is volatile or when the velocity of money is stable. Additionally, the stability of interest rates is not solely dependent on the growth of the money supply, as interest rates are affected by various economic factors, including inflation expectations, economic growth, and monetary policy actions.

Which of the Following Statements Is Correct with Respect to Monetary