Due to asymmetric information in credit markets, monetary policy may affect economic activity through the balance sheet channel, where an increase in the money supply
A) raises stock prices, lowering the cost of new capital relative to firms' market value, thus increasing investment spending.
B) raises firms' net worth, decreasing adverse selection and moral hazard problems, thus increasing banks' willingness to lend to finance investment spending.
C) raises the level of bank reserves, deposits, and bank loans, thereby raising spending by those individuals who do not have access to credit markets.
D) lowers the value of the dollar, increasing net exports and aggregate demand.
B
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The aggregate production function
A) measures the productivity of labor as leisure decreases. B) increases only with increases in productivity. C) shows that real GDP can increase because of increased productivity as well as increased labor hours. D) cannot show the impacts of productivity improvements.
Assume that price is greater than average variable cost. If a perfectly competitive firm is producing at an output where price is $114 and the marginal cost is $102, then the firm is probably producing more than its profit-maximizing quantity
Indicate whether the statement is true or false
In the housing market, rent control causes
A. quantity supplied and quantity demanded to fall. B. quantity supplied to fall and quantity demanded to rise. C. quantity supplied to rise and quantity demanded to fall. D. quantity supplied and quantity demanded to rise.
In a perfectly competitive market,
A. all firms produce and sell a standardized or undifferentiated product. B. firms are price-setters. C. the output sold by a particular firm may be quite different from the output sold by the other firms in the market. D. it is difficult for new firms to enter the market due to barriers to entry.