Question

Explain the importance of understanding monetary transmission mechanism

Explain the importance of understanding monetary transmission mechanism

Homework Answers

Answer #1
  • It involves channels to which the monetary policy decisions affect the Economy in general.
  • They guide Economic agents Expectations of inflation.
  • They influence price developments.
  • They affect both medium and long term interest rates.
  • They impact on Bank's monetary market and interest rates.
  • It describes how the policy induce changes in the nominal money stock.Impact real variables such as output and Employment.
  • Its key Assumption is that central bank liabilities include both components of monetary base that is currency and bank Reserves.
  • According to this mechanism,some friction in the Economy works to prevent nominal prices from adjusting immediately and proportionally to at least some changes in monetary base.
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Explain what is meant by transmission mechanism of monetary policy? What are the main mechanisms (...
Explain what is meant by transmission mechanism of monetary policy? What are the main mechanisms ( channels) through which monetary policy is transmitted and how might they have changed with the financial crisis?
Discuss Keynesian Transmission Mechanism showing relationship between monetary policy and consequence over GDP change
Discuss Keynesian Transmission Mechanism showing relationship between monetary policy and consequence over GDP change
Discuss the possible limitation of easy Monetary policy under Liquidity Trap in Keynesian Transmission Mechanism(1 point)
Discuss the possible limitation of easy Monetary policy under Liquidity Trap in Keynesian Transmission Mechanism(1 point)
For the following five questions, assume the following characteristics of the monetary transmission mechanism: The money...
For the following five questions, assume the following characteristics of the monetary transmission mechanism: The money multiplier is 4.55 Interest rates will change by 2.25% for every $125 billion change in the money supply. Investment will change by $95 billion for every 1.5% change in the interest rate. Income will change by $7.3 billion for every $3.8 billion change in investment. Identify the change in income when the Fed does the following: 1. Buys $35 billion in bonds. 2. Buys...
Explain the importance of understanding that cash flow forecasts in an NPV analysis are expected values.
Explain the importance of understanding that cash flow forecasts in an NPV analysis are expected values.
The importance of understanding ethic
The importance of understanding ethic
What is the importance of understanding the required datatypes to be used in microcontroller applications?. Explain...
What is the importance of understanding the required datatypes to be used in microcontroller applications?. Explain why utilization of proper datatypes is even more critical for embedded applications than those of general purpose computers.
What is Lumbopelvic Mechanism and its importance for ergonomics?
What is Lumbopelvic Mechanism and its importance for ergonomics?
Explain in detail the process of Monetary Policy transmission of an increase in the cash interest...
Explain in detail the process of Monetary Policy transmission of an increase in the cash interest rate. Use relevant graphs to describe how a Central Bank action on the interest cash rate ripple through the economy and lead to the target policy goal. (Three connected diagrams should be used: (1) money supply and demand (2) investment demand schedule (3) AS/AD diagram. Interest rates is the variable that connects the first and second diagram). Question
The demand for money rises. According to the Keynesian transmission mechanism, the interest rate __________, investment...
The demand for money rises. According to the Keynesian transmission mechanism, the interest rate __________, investment spending __________ (assuming it is interest-sensitive), the AD curve shifts to the __________ and if the AS curve is horizontal, Real GDP __________.                a.            rises; falls; left; rises                b.           falls; rises; right; does not change                c.            rises; falls; right; rises                d.           falls; falls; left; does not change                e.            rises; falls; left; falls There is...