Reverse causation between money and aggregate output is likely to be a problem when a central bank targets
A)a monetary aggregate.
B)an interest rate.
C)the exchange rate.
D)the inflation rate.

Question

Quizplus · Accepted Answer

When a central bank targets an interest rate, changes in aggregate output can influence the demand for money, which in turn can lead to changes in interest rates. This creates a situation where causation can run from output to money, rather than the other way around, leading to reverse causation issues.

Reverse Causation Between Money and Aggregate Output Is Likely to Be