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If the Principal Instability in the Economy Is Due to Instability

Question 63

Multiple Choice

If the principal instability in the economy is due to instability in the velocity of money,


A) targeting interest rates will do little or nothing to stabilize the magnitude of shocks to the economy.
B) targeting interest rates will stabilize the magnitude of shocks to the economy.
C) it would be better to have a monetary policy reaction function that reacts to leading indicators and outcomes.
D) the Federal Reserve should take monetary policy action to shift the IS curve in the opposite direction of the shock.

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