If the demand for money increases and the Fed wants to target interest rates,

The money supply will have to increase. True or false?

Homework?

Just, can't understand the way my book explains it and yes it's a part of my homework, but I don't want to get a bad grade in class.

Tell us what you think and why, we can then advise you on your answer.

Also remember your teacher wants what the book says, and wants you to know why, not just a pure T or F.

Also we have people form various political view points here they may see the answer in different terms from their political view point, which may not match your books answer

Quote:

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Originally Posted by Mikethelen

If the demand for money increases and the Fed wants to target interest rates,

the money supply will have to increase. True or false?

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If this question is worded exactly this way in the book, it doesn't surprise me that you can't follow the author's explanation of the central bank's role and function in a national economy because he apparently doesn't understand it very well either.

The conceptual model that the question is based on assumes that money is like any other product and the Fed is like any other supplier, and that the interest rate is the market price of that product. To the extent that these assumptions are appropriate (IMO, not at all), the answer to the question would be True.