If the Fed seeks to maintain a fixed targeted interest rate, then it will have to increase the money supply when the demand for money increases as income increases.

Question

Quizplus · Accepted Answer

If the Fed wants to maintain a fixed targeted interest rate, it will have to meet the increased demand for money by increasing the supply of money. This is because if the demand for money exceeds the supply of money, interest rates will rise. By increasing the supply of money, the Fed can reduce interest rates and maintain their desired target rate.

If the Fed Seeks to Maintain a Fixed Targeted Interest