Question

Distinguish between a goal, a target and an instrument in making monetary policy.

Distinguish between a goal, a target and an instrument in making monetary policy.

Homework Answers

Answer #1
  1. Goal - This is normative objective like achieve price stability, high growth, low employment, economic stability, stability in financial and foreign market etc.
  2. Target - These are indicators like money supply and shirt run interest rates. Their particular value is targeted to achieve goals by using instruments.
  3. Instrument - These are the tools which helps Fed achieves its targets and goals. It includes open market operations, reserve requirement, bank rate and overnight lending.

Using instrument, Fed achieves its targets which are sustainable with its goals.

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