Which variable do central banks typically set directly, and which variable adjusts as a consequence?

Multiple choice question for Money, Interest Rates And Output. Select an option, then review the explanation below.

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Explanation

Central banks usually target the interest rate and allow the money supply to adjust to maintain equilibrium. Therefore, they fix the interest rate and accept the resulting equilibrium money supply.

Practice related questions from the same subject.

1.How does a decrease in interest rates affect the monetary base, consumer credit availability, and the cost of consumer credit?
2.What is it called when the central bank purchases financial assets in the open market to expand the monetary base?
3.M4 is considered a __________ monetary aggregate and encompasses deposits held at both __________ and __________?
4.Assuming all other factors remain constant, what happens to the quantity of real money holdings when interest rates increase?
5.Holding money aside to be prepared for unexpected opportunities is an example of which type of money demand?

Which variable do central banks typically set directly, and which variable adjusts as a consequence?

Explanation

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