Question

please minimum 500 words

Interest rates can be measured more accurately and more quickly than money supply. Hence interest rate is preferred over the money supply as an intermediate target”. Do you agree or disagree? Explain your answer.

thank you

Answer 1

--->intermediate targets are economic variable in banking not under the direct control of the bank such as the supply of money or interest rates. However, the target does respond fast to the policy actions and has a predictable relationship with the goals of the policy. Whether money supply or interest rates is quickly measurable is a bit tricky. Because, 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.