Author Question: Describe the channels by which monetary policy ripples through the economy and explain how each ... (Read 53 times)

danielfitts88 · **on:** Jun 29, 2018

Describe the channels by which monetary policy ripples through the economy and explain how each channel operates.

What will be an ideal response?

Question 2

In economics, the practical application of an invention is known as

A) innovation. B) entrepreneurship. C) physical capital. D) technology.

Anonymous · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

When the Federal Reserve lowers the federal funds rate, other short-term interest rates also fall. As a result, the exchange rate falls because investors decrease their demand for U.S. dollars since the interest yield on dollars is lower. When the Federal Reserve lowers the federal funds rate it does so by buying securities in the open market. Bank reserves increase so that banks have excess reserves. Because banks have excess reserves, they loan the excess. Loans increase and a multiple expansion of the quantity of money results. The supply of loanable funds increases so that the long-term real interest rate falls and consumption and investment increase. Net exports increase because of the lower exchange rate. All three of these changes increase aggregate demand, so that real GDP growth and the inflation rate both increase.

Answer to Question 2

A