Question

Because of the breakdown in the relationship between the growth of the money supply and​ inflation, since​ 1993, the Fed A. has announced targets for M1 or M2. B. has announced a target for M2 instead of M1. C. has announced a target for M1 instead of M2. D. no longer announces targets for M1 or M2.

Answer 1

Ans. D.) No longer announces targets for M1 or M2

For decades,the Fed has published data on money supply or more specifically the Fed has been publicly targeting money supply.The Fed had been using M2 measure of money supply till 1992. But since 1993,due to a breakdown in the relationship between M2 and the nominal income, the Fed has been targeting the federal funds rate also known as the overnight interbank loan rate. so when the Fed announces its new target, it uses Open Market Operations(OMO) to raise or lower the reserves of the banking system in order to affect the overnight interbank loan rate, and thus bring this market interest rate to move toward its new target.