What limited the effectiveness of monetary policy during the financial crisis of 2007-2009?
Suppose the stock market crashes resulting in a significant decline in the wealth of consumers.Make use of the IS-MP model to illustrate the impact this has on the economy.How is the Fed likely to respond? Show the impact of the change in monetary policy on the graph of the IS-MP model.
The bank lending channel A) emphasizes the role of interest rates in the money supply process. B) emphasizes the importance of borrowers' net worth to the decision of lenders to grant loans. C) emphasizes the behavior of bank-dependent borrowers. D) is another name for the interest rate channel.
In the bank lending channel,an important reason for output increases in the short run after an expansionary monetary policy is that A) the funds directly available for households and firms to spend will increase. B) prices will increase, making increased production more profitable for firms. C) the increase in government spending from an expansionary monetary policy increases output through the multiplier effect. D) the ability of banks to make loans will increase.