Problem
1. Explain why policy makers have generally come to the conclusion that the only effective instrument of monetary policy is the short-term rate of interest.
2. Outline the disadvantages of trying to limit the growth of money and credit by ‘direct' controls.
3. ‘It is not that the demand for lending has become less sensitive to changes in relative interest rates. If anything, it has become more so. The problem lies in the increasing inability of the authorities to cause changes in relative rates by changing the level of absolute rates.' (Goodhart, 1984). Explain how this situation has come about.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.