Targeting interest rates can be pro cyclical because
A) an increase in income increases interest rates, causing the Fed to buy bonds, increasing the monetary base and money supply, leading to further increases in income.
B) an increase in interest rates increases income, causing the Fed to buy bonds, increasing the monetary base and money supply, leading to further increases in income.
C) an increase in the monetary base increases the money supply, causing the Fed to buy bonds, increasing the monetary base and money supply, leading to further increases in income.
D) an increase in income increases the monetary base and money supply, causing the Fed to buy bonds to increase interest rates and income.
Answer: A