Consider a country where the level of excess reserves fluctuates widely and unpredictably. Would such a country be a good candidate for a money growth rule to guide monetary policy? Explain your answer.
Answer to relevant Questions*Suppose a central bank is trying to decide whether to target money growth. Proponents of the move are confident that the new policy would be successful as, under the existing policy regime, they observed a stable ...In theory, the velocity of money should rise with the cost of holding it. To assess the theory, plot the opportunity cost of holding M2 – defined as the difference between the three-month Treasury bill rate (FRED code: ...Suppose the real interest rate unexpectedly falls in the absence of other economic changes. What would you expect to happen to (a) Consumption,(b) Investment, and (c) Net exports? Consider Panel B of Figure 21.16, where the short-run equilibrium occurs at an output level below potential output, Yp. Suppose that the initial inflation target is at point 2, but the central bank chooses to stimulate ...Explain why stabilization policies are usually pursued using monetary rather than fiscal policy.
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