How does an expansionary monetary policy affect aggregate ...

[elizabeth18]

How does an expansionary monetary policy affect aggregate expenditures according to the bank lending channel?
 
  What will be an ideal response?

Question 2

The idea that government budget deficits do not matter under certain circumstances is
 
  A) called the Friedman-Lucas theory.
  B) called the Ricardian equivalence theorem.
  C) attributed to Edward Prescott and Finn Kydland.
  D) preposterous.

[bitingbit]

Answer to Question 1

In the bank lending channel, an expansionary monetary policy causes aggregate expenditure to increase for two reasons: (1 ) the increase in households' and firms' spending from the drop in interest rates, and (2 ) the increased availability of bank loans. In other words, if banks expand deposits by lowering interest rates on loans, the amounts that bank-dependent borrowers can borrow and spend increases at any real interest rate.

Answer to Question 2

B

[elizabeth18]

Thanks for the timely response, appreciate it

[apple]

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