6) Those who advocate that the Fed target monetary aggregates, usually argue tha

Question

6) Those who advocate that the Fed target monetary aggregates, usually argue that the Fed should not alter its monetary targets in response to temporary changes in macroeconomic conditions, yet those who advocate interest rate targeting never recommend that the Fed maintain a constant federal funds rate target. Why not? (What's the potential danger of maintaining a rigid interest rate target?)

7) If excessively rapid growth in the money supply is associated with all inflationary episodes, why do central banks ever allow the money supply to increase so rapidly?

Explanation / Answer

6) Interest rates are influenced by the global financial player, and by U.S. banks.

The U.S. depends greatly on exported loans from foreign countries, like Japan, China, India, and Germany to fiance our national debt. If interest rates were to low, foreign investers would look else where to invest their capital, however a large portion of of foreign captial is in dollars, for example we owe foreign investers about a trillion dollars, It cost us about 30 billion per month in interest payments.

7) Unlike regular inflation, where the process of rising prices is protracted and not generally noticeable except by studying past market prices, hyperinflation sees a rapid and continuing increase in prices and in the supply of money, and the cost of goods.

Hyperinflation is often associated with wars, their aftermath, sociopolitical upheavals, or other crises that make it difficult for the government to tax the population, as a sudden and sharp decrease in tax revenue coupled with a strong effort to maintain the status quo can be a direct trigger of hyperinflation.

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