Intermediate Targets

Intermediate Targets - Assume that the goal is well-known...

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Intermediate Targets From Last Time Would making the required reserve ratio 100% make the economy slow down? Yes. The money supply would immediately contract. Also, the primary source of external funding for businesses would be lost so investment spending would fall. Does the federal funds rate move up or down usually? The federal funds rate is as likely to go up as it is to go down. Goals of Monetary Policy The Federal Reserve wishes to achieve certain goals but it does not directly influence the goals. goals: high employment economic growth price stability interest rate stability stability of financial markets stability in foreign exchange markets
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Unformatted text preview: Assume that the goal is well-known and agreed upon. Assume that there is some policy tool that influences the goal so that at some time the goal is achieved. sufficient conditions for achieving goal: 1. perfect knowledge about the economy 2. no lag of any kind: recognition, action, and impact lags If policymakers were continuously aware of the value of the goal variable and if policy instruments had an instantaneous impact on the goal variable, then policy makers could adjust and readjust the policy instruments continuously. Neither sufficient condition exists. What method of operation maximizes the likelihood of hitting the goals?...
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This note was uploaded on 11/22/2011 for the course FIN FIN1100 taught by Professor Bradrifkin during the Fall '09 term at Broward College.

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