The chapter seems to imply that the direct influence of short-term interest rate changes by central bankers is not that powerful in terms of their direct impact on spending. Why then do so many people pay attention to the monetary policy?
What will be an ideal response?
While it is true that the direct impact of short term interest rate changes on investment spending and consumer spending seems to be relatively weak transmission mechanisms, what is true is these short-term interest rate changes can have significant impact on stock and real estate markets by altering the value of financial assets as well as on the behavior of banks concerning their willingness to lend. These transmission mechanisms seem to be quite strong and as a result, the impact of interest rate changes can have significant impact on the decision making of many individuals and monetary policy can be highly effective as a result.
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Refer to the above figure. If the price level is 80
A) the total planned real expenditures by individuals, businesses, and the government are less than total planned production by firms. B) the aggregate demand curve will automatically shift leading to a stable equilibrium. C) the economy will have economic growth and the new equilibrium price level will be 80. D) the total planned real expenditures by individuals, businesses, and the government exceed total planned production by firms.
Keynes felt that the economic effects of business confidence, for example a loss confidence shifting the ________ curve to the left, were of ________ importance
A) IS, major B) IS, minor C) LM, major D) LM, minor
How did maintaining the gold standard deepen the severity of the Great Depression?
What will be an ideal response?
Heteroskedasticity means that
A) homogeneity cannot be assumed automatically for the model. B) the variance of the error term is not constant. C) the observed units have different preferences. D) agents are not all rational.