EXPLAIN AND DEMONSTRATE GRAPHICALLY HOW TARGETING A MONETARY AGGREG...

1) - TEST BANK CHAPTER 18 CONDUCT OF MONETARY POLICY GOALS AND TARGETS TÀI CHÍNH TIỀN TỆ
TEST BANK CHAPTER 18 CONDUCT OF MONETARY POLICY GOALS AND TARGETS TÀI CHÍNH TIỀN TỆ
1) Explain and demonstrate graphically how targeting a monetary aggregate can result in interest rate instability. Answer: In the figure below, when the money supply is held constant, increases in money demand result in increased interest rates, and decreases in money demand result in fall interest rates. The target money supply is the vertical money supply line. Since fluctuations in demand do not cause monetary policy actions, the result is the interest rate fluctuations shown in the graph.