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8. “The monetary authority can use either the interest rate or the quantity of money as...

8. “The monetary authority can use either the interest rate or the quantity of money as the policy variable but not both.” Do you agree? Explain and illustrate using the supply of and demand for money graphs.

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Answer is False.

Monetary authority ljke central bank cn use both simultaneously for example in recession the bank adopts expansionary monetary policy by cutting interest rates and reserves requirements and buying government securities to boost money supply in market and thus lead to rise in real GDP.

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