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It is impossible to target both the money supply and the rate of interest. If you control one you have to let the other be as it will. Discuss
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It is impossible to target both the money supply and the rate of interest. If you control one you have to let the other be as it will. Discuss To discuss the above question we must firstly view the ways in which money supply can be controlled. In order to distinguish this we must first identify how it can be measured. Money can be classified under two categories. High powered money (or monetary base) and broad money. Cash notes and coins that circulate outside the Country's central bank is the narrow monetary base. The addition of banks' balances with the central bank make up the wide monetary base, known in the UK as M0. However the monetary base system excludes bank deposits, which are the most popular source of liquidity for spending. Therefore broad money is the measuring tool used by most countries in order to measure money supply. It consists of deposits...
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