Question

If the FOMC were to aim to attain targets for M1 or M2 instead of the federal funds rate, would people be as concerned with trying to anticipate future federal funds rate changes? Explain.

Short answer

If the FOMC were to aim to attain targets for M1 or M2 instead of the federal funds rate, the federal funds rate will hold its position.

Step-by-step solution

introduction 

At the point when a strategy is to such an extent that individuals expect it by utilizing all suitable data, then, at that point, the approach becomes ineffectual. Monetary specialists utilize all suitable data as a base to shape their assumptions.

explanation part (a)

The soul of the objective assumptions theory is that individuals structure assumptions and attempt to frame them amazing precisely. Individuals structure assumptions regarding various things and, for this, they utilize all suitable data.

explanation part (b)

Government finances rates are something individuals are worried about, in light of the fact that they utilize this data for their future activities according to their expectations. This is the rate at which the Fed loans to banks and hence it remembers data-based assumptions regarding the loaning circumstance for the country.