When we assume that the supply of money is a variable that the central bank controls,we
A)must then assume as well that the demand for money is not influenced by the value of money.
B)must then assume as well that the price level is unrelated to the value of money.
C)are ignoring the fact that,in the real world,households are also suppliers of money.
D)are ignoring the complications introduced by the role of the banking system.

Question

Quizplus · Accepted Answer

Assuming the supply of money is a variable that the central bank controls ignores the complications introduced by the role of the banking system. The banking system, through its ability to create money through lending, also affects the supply of money in the economy. Therefore, the assumption that the central bank solely controls the supply of money is overly simplistic.

When We Assume That the Supply of Money Is a Variable