"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that
A)shifts of the money-supply curve cannot occur if the Federal Reserve decides to target an interest rate.
B)the aggregate-demand curve will not shift in response to Federal Reserve actions if the Fed decides to target an interest rate.
C)changes in monetary policy aimed at contracting aggregate demand can be described either as decreasing the money supply or as raising the interest rate.
D)the activities of the Federal Reserve's bond traders are irrelevant if the Federal Reserve decides to target an interest rate.

Question

Quizplus · Accepted Answer

Monetary policy aimed at contracting aggregate demand can be described in two ways: decreasing the money supply or raising the interest rate. Similarly, monetary policy aimed at expanding aggregate demand can be described either as increasing the money supply or lowering the interest rate. Therefore, the statement that "monetary policy can be described either in terms of the money supply or in terms of the interest rate" is true, and the correct answer is C. Choices A, B, and D are all incorrect because none of them accurately reflects the meaning of the statement.

"Monetary Policy Can Be Described Either in Terms of the Money