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

When the demand for money increases due to rising income, the interest rate may increase as well. If the Fed wants to maintain a fixed targeted interest rate, it will have to increase the money supply to meet this increased demand for money and keep the interest rate stable.

If the Fed Seeks to Maintain a ﬁXed Targeted Interest