Which of the following statements is (are)correct? Regardless of whether the LM curve is vertical or upward sloping,
A)a money stock target is superior to an interest rate target when the uncertainty facing the policymaker concerns the IS schedule.
B)an interest rate target is always superior to a money stock target when the uncertainty facing the policymaker concerns the IS schedule.
C)both a money stock target or interest rate target provide the same results when the uncertainty facing the policymaker concerns the IS schedule.
D)a money stock target is never superior to an interest rate target when the uncertainty facing the policymaker concerns the IS schedule.

Question

Quizplus · Accepted Answer

When the LM curve is vertical or upward sloping, changes in the money supply have no effect on the interest rate. In this case, a money stock target cannot affect the economy, and an interest rate target would be necessary to influence investment and consumption decisions through changes in the cost of borrowing. Therefore, statement A is correct, and statements B, C, and D are incorrect.

Which of the Following Statements Is (Are)correct? Regardless of Whether