Question

Macroeconomics

1. Explain why the sources of uncertainty will determined whether the policy makers is going to target the monetary aggregate or to target the interest rates. [15 marks]

Thank you for your help and I appreciate if the explanation is supported with relevant graph if applicable. Im quite weak in this subject and topic.

Answer 1

Sources of uncertainty like global turmoil, political instability, forex reserves, inflation, unemployment, credit availability by foreign funds, etc all are volatile and have versatility and thus ultimately decide whether central banks must pursue conventional tools like interest rates or amount of moeny to be circulated.

If unemployment is high, recession is near, global uncertainty is extreme, yield curve has inverted, slowdown is reality then central banks look to cut interest rates and increase monetary aggregate both through cutting down Cash reserve ratio, statutory liquidity ratio, capital adequacy ratio and unlimited bond buying programmes to stimulate economy with credit fund availability.

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