If the Federal Reserve wants to control the level of interest rates
A)it must keep the supply of money constant.
B)it must let the money supply grow at a constant rate.
C)it can do so only if it also stabilizes nominal GDP.
D)it will have to give up control of the money supply.

Question

Quizplus · Accepted Answer

The Federal Reserve can influence interest rates through its monetary policy actions, but doing so often requires adjusting the money supply. For example, to lower interest rates, the Fed might increase the money supply. Conversely, to raise interest rates, it might reduce the money supply. This means it cannot simultaneously control interest rates and keep the money supply constant.

If the Federal Reserve Wants to Control the Level of Interest