Classify each of the ofllowing as either a policy instrument or an intermediate target, and explain why? a. The ten-year Treasury bond rate
b. The monetary base
c. Ml
d. The fed funds rate

The answers are given below

Explanation:

An intermediate target is a variable this isn't controlled directly under the central bank, but one that has a quick response to policy actions. e.g money supply.

A policy instrument is a tool used to manipulate a variable in the economy and achieve a desired objective. e.g. tax rates, interest rates, subsidies etc.

a. The ten-year Treasury bond rate

It is an intermediate target because isn't controlled directly under the central bank but can be linked to an activity in the economy.

b. The monetary base

This is a policy instrument because used to manipulate a variable in the economy and achieve a desired objective.

c. Ml

This is an intermediate target as it cannot be affected directly by the Federal tools.

d. The fed funds rate

This is a policy instrument as it can be affected directly by Fed tools.

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