“Money demand is inversely related to interest rates and is steady over time.” Discuss and illustrate out the theoretical and empirical validity of this statement.
(i) Examine the different instruments employed by Central Bank to control money supply and discuss their efficiency.
(ii) Examine the interest rate channel through which a monetary policy could be transmitted to economy.
a) Illustrate out the rationale for conducting the expansionary monetary policy throughout periods of recession.
b) Illustrate out the channels for monetary policy transmission proposed by credit view. Discuss and illustrate out their efficiency throughout periods of financial crisis.
(a) Demand pull inflation is persistent while cost push inflation isn’t. Discuss.
(b) Examine the monetary policy called inflation targeting.
prepare concise notes on the following:
• Discretionary monetary policy v/s policy rule.
• Time inconsistency of a monetary policy.
• Government’s budget deficits and inflation.
• Rational expectations.