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HW_5_Solutions_Chapter_8[1]

HW_5_Solutions_Chapter_8[1] - Chapter 8 Conduct of Monetary...

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Chapter 8 Conduct of Monetary Policy: square6 Answers to End-of-Chapter Questions 7. Disagree. Although nominal interest rates are measured more accurately and more quickly than the money supply, the interest rate variable that is of more concern to policymakers is the real interest rate. Because the measurement of real interest rates requires estimates of inflation, it is not true that real interest rates are necessarily measured more accurately and more quickly than the money supply. Interest-rate targets are therefore not necessarily better than money supply targets. 8. The monetary base is more controllable than M2 because it is more directly influenced by the tools of the Fed. It is measured more accurately and quickly than M2 because the Fed can calculate the base from its own balance sheet data, while it constructs M2 numbers from surveys of banks, which takes some time to collect and are not always that accurate. Even though the base is a better intermediate
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