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Suppose that foreigners start holding more U.S. currency. For a given interest rate, Americans don't change their holdings of either currency or checking deposits and the Fed makes no attempt to keep the monetary base constant. Consider the following actions by the Fed:
I. The Fed targets the money supply
II. The Fed targets the interest rate A. the monetary base will have to increase by less than under money supply targeting by the Fed.
B. the monetary base will have to increase by more than under money supply targeting by the Fed.
C. the monetary base will have to change by the same amount than under money supply targeting by the Fed.
D. the monetary base will have to decrease by less than under money supply targeting by the Fed.
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