Money, Banking and the central Banking system - Central Banks - interest rate targets verses money supply targets
3 important questions on Money, Banking and the central Banking system - Central Banks - interest rate targets verses money supply targets
What are the choices about monetary policy that centeral banks can make?
- They caneither set the money supply and let the interenst rate adjust
- or they can set a key interest rate and then adjust the money supply to accomodate the resulting change in the desired money holdings
Which monetary policy is better, for both exp and cont MP, key interest rate or change money supply? What are the two advantages for this option, and one diadvantage to the second option?
the central bank can influence the money supply but cannot control it
changes in the interest rate tend to be more meaningful to firms and households
becasue its not clear what money supply is we should use the key interest rate becasue it is defined
What can the central bank control? How does it do it? Why does it conduct open market operations?
- The central bank can control its key interest rate, the overnight rate
- it can announce a target for the overnight rate
- in order to keep the overnight rate within the operating bad of one quarter of a percentage point above and below that target
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