Question 1

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?

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Question 2

Why is it more correct to say that there may be correlation between high interest rates and the growth rate of output but there is no clear causation?

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Question 3

Why did the FOMC cut the target federal funds rate so aggressively between September 2007 and December 2008 in a series of 10 cuts?

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Question 4

During the 2007-2009 financial crisis, what prevented policy easing from being transmitted as usual to the real economy?

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Question 5

Why can't the nominal interest rate be negative?

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Question 6

What role, if any, did the accounting scandals involving some U.S. companies in 2001 and 2002 play in the supply of loans?

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Question 7

Explain how the asset-price channel of monetary policy works in real estate markets.

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Question 8

What are the arguments for and against monetary policymakers intervening to address equity and property price bubbles?

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Question 9

Why is deflation, combined with a recessionary gap, and a nominal interest rate that cannot be reduced a monetary policymaker's nightmare?

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Question 10

Explain why a corporation may find it advantageous to undertake greater investment when the value of its stock shares increase.

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Question 11

What are the pros and cons of a policy of "leaning against bubbles?"

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Question 12

When faced with inflation above desirable levels, is there anything that policymakers can do about concern that a deep recession will lower inflationary expectations sharply and thereby raise real interest rates in a destabilizing manner?

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Question 13

Discuss the impact of the evolving financial system on the bank-lending channel of monetary policy transmission? Evaluate what that is likely to mean for future changes in the target federal funds rate.

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Question 14

Explain why a lowering of interest rates should raise stock prices.

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Question 15

What are the unconventional policy options that central bankers can use if the traditional target interest rate hits the lower bound?

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Question 16

How does adverse selection factor into explaining the reduced supply of loans when interest rates increase?

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Question 17

If greater stock prices can lead to greater investment spending, should central bankers ever worry about stock prices becoming too high?

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Question 18

Why are policymakers reluctant to make unconventional tools part of their regular arsenal of policy tools?

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Quiz 23: Modern Monetary Policy and the Challenges Facing Central Bankers