Question

7. What are the benefits of setting official target interest rates? Discuss.

8. Do you agree with the ideas of monetarism? Yes or no? Explain.

Answer 1

Answer 7 : The target interest rate is the rate charaged by the depository institution on an overnight sale of balance at federal reserve to another depository institution.
Benefits are :

• Fed bank easily express their monetary policy in terms of single rate easily observed.
• Target interest rate control financial market or instirtutions.
• It has been useful by the fed bank in interbank market as an operating instrument.
• Fed controlled the supply of money with the help of target interest rate.

Answer 8 : Monetarism is an economic view that money supply play an utmost important role in economic growth. As money supply increases, people demanded more. But from my point of view monetarism helps to create only short run growth. As in long run people demanded more it created inflation. Monetarism believes that monetary policy plays an dominat role than fiscal policy.

No, I am not agree with monetarism because

• Fiscal policy such as government spending and tax policies play an important role in the development of the country.
• Increased in money supply created inflation in long run economy.
• Short run job creation
• Overall development of an economic is not possible with monetarism.