Proponents of the modern central banking theory of interest rate determination agree that central banks can control
A) short-term market interest rates.
B) medium-term market interest rates.
C) long-term market interest rates.
D) long-term real interest rates.
E) medium-term real interest rates.

Question

Quizplus · Accepted Answer

Proponents of modern central banking theory argue that central banks can directly control short-term market interest rates through their policy decisions, such as setting the federal funds rate in the US or the overnight rate in Canada. While their actions may have an indirect impact on medium and long-term market interest rates, they are not directly controlled by the central bank. Similarly, real interest rates are affected by changes in inflation expectations, which are influenced by a wide range of factors beyond the control of the central bank.

Proponents of the Modern Central Banking Theory of Interest Rate