discussion and 2 response

Anonymous

Question Description

In chapter 25 we see the process of how monetary policy affects the overall economy. The transmission mechanisms show the variables that change when the Fed takes action. Without identifying the 9 channels by name, identify the variables that change when the Fed initiates policy. Then explain how changes in these variables affect aggregate demand. Finally, explain what happens to real GDP. Look at this as a chain reaction. In your answer assume the Fed initiates an expansionary monetary policy action.

When you finish the discussion part, I can post classmate's work. Then you need write 2 response for their discussion.

Unformatted Attachment Preview

Chapter 25 Transmission Mechanisms (Channels) of Monetary Policy Preview • This chapter examines the transmission mechanisms of monetary policy and evaluates the empirical evidence on them to better understand the role that monetary policy plays in the economy. Figure 1 The Link Between Monetary Policy and Aggregate Demand: Monetary Transmission Mechanisms 1) The Traditional Real interest rates are important • • • • Real interest rate declines…… Investment increases….. Consumption increases….. AD increases to right Real GDP Increases 2) Exchange Rate Effects on NX • • • • • • • Real interest rate declines…… Causes investment to move out of US…. Supply of $s in world mkt increases….. Demand for dollars decreases…. Exchange rate falls ($ depreciates)….. NX increases…….. AD increases to the right Real GDP increases 3) Tobin’s q Theory • • • • • • Real interest rate declines…… Stock prices increase…… q increases(q=mkt value of firms/replacement cost of capital) Firms are motivated to issue more stock… Investment increases……. AD increases to the right Real GDP increases 4) Wealth Effects • • • • Real interest rate declines…… Price of stock increases….. Wealth increases people are richer…… Long term: For every $1 increase in wealth, spending increases from 3 to 7 cents • Consumption increases….. • AD increases to the right Real GDP increases 5) Bank Lending Channel • • • • • • Focuses on volume of loans not interest Bank reserves increase….. Bank deposits increase….. Bank loans increase….. Investment increases….. AD increases to the right real GDP increases. • Small business most effected here 6) Balance Sheet Channel • • • • • • • • Real interest rate declines…… Price of stock increases….. Firms net worth increases….. Adverse selection and moral hazard decrease…… Easier to get loans…. Lending increases….. Investment increases….. AD increases to the right Real GDP increases 7) Cash Flow Channel • Nominal interest rates decrease….. • Improves business cash flow….. • Increases number of better qualified borrowers • Adverse selection and moral hazard decrease…… • Lending increases….. • Investment increases….. • AD increases to the right Real GDP increases 8) Unanticipated Price Level Channel • • • • • • Real interest rates decrease…… Inflation increases…. Unanticipated prices increase…… Real value of debt declines….. Firms real net worth increases….. Adverse selection and moral hazard decrease…… • Lending increases…. • Investment increases • AD increases to the right 9) Household Liquidity Effects • • • • Real interest rates decrease…… Price of stock increases…. Value of HH financial assets increase…. Likelihood of financial distress decreases… • Consumer durable and housing expenditure increases…… • AD increases to the right real GDP increases ...
Purchase answer to see full attachment

Tutor Answer

Dr_DavidNowell
School: University of Maryland

Hello Buddy, Here is the discussion. In case of any issue, do not hesitate to let me know. Thanks for All,You are Awesome ✌

Running head: AN EXPANSIONARY MONETARY POLICY ACTION

Discussion Post: An Expansionary Monetary Policy Action
Student’s Name
Institutional Affiliation

1

AN EXPANSIONARY MONETARY POLICY ACTION

2

Discussion Post: An Expansionary Monetary Policy Action
In the economic circles, expansionary monetary policy action is perceived to be the
government’s approach of increasing employment; however, when defined expansionary
monetary policy action refers to the process of ...

flag Report DMCA
Review

Anonymous
Tutor went the extra mile to help me with this essay. Citations were a bit shaky but I appreciated how well he handled APA styles and how ok he was to change them even though I didnt specify. Got a B+ which is believable and acceptable.

Similar Questions
Related Tags

Brown University





1271 Tutors

California Institute of Technology




2131 Tutors

Carnegie Mellon University




982 Tutors

Columbia University





1256 Tutors

Dartmouth University





2113 Tutors

Emory University





2279 Tutors

Harvard University





599 Tutors

Massachusetts Institute of Technology



2319 Tutors

New York University





1645 Tutors

Notre Dam University





1911 Tutors

Oklahoma University





2122 Tutors

Pennsylvania State University





932 Tutors

Princeton University





1211 Tutors

Stanford University





983 Tutors

University of California





1282 Tutors

Oxford University





123 Tutors

Yale University





2325 Tutors