Exam 26: Transmission Mechanisms of Monetary Policy

Tobin's q theory suggests that monetary policy may affect investment spending through its impact on ________.

If the particular channels through which changes in the money supply affect aggregate income are diverse and continually changing, the best evidence of monetary policy's effect is likely to come from ________.

Early Keynesians felt that ________ policy was ________, so they stressed the importance of ________ policy.

A(n) ________ of reduced-form evidence is that it cannot rule out ________.

Reverse causation between money and aggregate output is likely to be a problem when a central bank targets ________.

A disadvantage of ________ evidence is that it cannot rule out ________.

Early Keynesians believed that monetary policy ________.

Periods of price deflation, such as the Great Depression, are characterized by ________.

With regard to aggregate demand, early Keynesians tended to believe that ________.

________ nominal interest rates do ________ indicate that the cost of borrowing is ________.

An expansionary monetary policy increases net exports by ________ interest rates and ________ the value of the dollar.

In a period of deflation, when there is a declining price level, ________ nominal interest rates do not necessarily indicate that the cost of borrowing is ________ or that monetary policy is easy.

What are the advantages of reduced-form evidence?

An expansionary monetary policy may cause asset prices to rise, thereby reducing the likelihood of financial distress and causing consumer durable and housing expenditures to rise. This monetary transmission mechanism is referred to as ________.

Tobin's q is defined as the market value of firms ________ the replacement cost of capital.

What is the statistical evidence of early monetarists on the importance of money?

Using ________ we can predict how ________ changes may affect the link between M and Y.

Monetarists claim that ________ models ignore important transmission mechanisms and therefore ________ the importance of the effects of monetary policy on the economy.

According to Tobin's q theory, when equity prices are high the market price of existing capital is ________ relative to new capital, so expenditure on fixed investment is ________.

Movements of real interest rates indicate that, contrary to the early Keynesians' beliefs, ________ policy was ________ during the Great Depression.