If the desired intermediate target is an interest rate,then the preferred policy instrument will be a(n)________ variable like the ________.
A)interest rate; three-month T-bill rate
B)interest rate; federal funds rate
C)monetary aggregate; monetary base
D)monetary aggregate; nonborrowed base

Question

Quizplus · Accepted Answer

If the intermediate target is an interest rate, the preferred policy instrument would also be interest rate. The federal funds rate is often used as the preferred policy instrument by central banks such as the Federal Reserve in the United States. Therefore, the best choice would be B, interest rate; federal funds rate.

If the Desired Intermediate Target Is an Interest Rate,then the Preferred