Which of the following statements is correct?
A)Because in practice few borrowers are bank-dependent, the bank lending channel is of little real-world importance.
B)In the money channel, an expansionary monetary policy may cause a leftward shift in the AD curve.
C)In the bank lending channel, an expansionary monetary policy can increase output in the short run even if it results in an increase in the real interest rate.
D)In the money channel, an expansionary monetary policy affects the money supply curve but not the money demand curve.

Question

Quizplus · Accepted Answer

In the bank lending channel, an expansionary monetary policy can increase output in the short run even if it results in an increase in the real interest rate. This is because an increase in the money supply can make it easier for banks to lend, which can in turn increase investment and consumption spending, leading to an increase in output. The increase in real interest rate can also lead to a decrease in saving and an increase in borrowing, which can further stimulate spending and output. Option A is incorrect because even if few borrowers are bank-dependent, the bank lending channel can still have an impact on the economy. Option B is incorrect because an expansionary monetary policy would cause a rightward shift in the AD curve, not a leftward one. Option D is incorrect because an expansionary monetary policy affects both the money supply curve and the money demand curve.

Which of the Following Statements Is Correct