Show graphically and explain why targeting an interest rate is preferable when money demand is unstable and the IS curve is stable
What will be an ideal response?
See figure below.
Unstable money demand causes the LM curve to shift between LM' and LM". If the money supply is targeted, output fluctuates between Y' and Y". With an interest rate target, output remains stable at Y. Since the objective is to minimize output fluctuations, targeting the interest rate is preferable.
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The U.S. government deficit as a percentage of GDP was much larger during World War II than it was in the 1980s and 1990s
a. True b. False Indicate whether the statement is true or false
Vilfredo is considering buying a house for $220,000 and renting it out for $2,000 per month. If the price suddenly jumps to $250,000, Vilfredo's expected yearly rate of return will:
A. remain unchanged, as the house price and the rate of return are independent of each other. B. be 13.6 percent. C. fall from 9 percent to 8 percent. D. fall from 10.9 percent to 9.6 percent.