Question

What is considered the most relevant interest rate when conducting monetary policy?

A. Short-term nominal interest rate
B. Long-term nominal interest rate
C. Annual nominal interest rate

Answer 1

A. Short-term nominal interest rate

Step-by-step explanation:

Short term nominal interest rate is most relevant because it is the interest rate which is most affected by the monetary policy. Other rates are also affected by monetary policy but monetary policy has the biggest impact on short term interest rates, the reason for this is that in the long term there can be various other factors that can affect the interest rate such as inflation, change in government policy, change in economics landscape, change in foreign exchange, but in the short run these variables do not have a big impact.