In the Bank Lending Channel, an Important Reason for Output

question 82

Multiple Choice

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.

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Definitions:

External Failure Cost

Costs incurred when a defective product or service is discovered after delivery to the customer, including returns, repairs, and lost sales.

Prevention Costs

Costs incurred to prevent defective units before they are produced. For example, reengineering products or production processes.

Appraisal Costs

Costs associated with the evaluation and inspection of products or services to ensure they meet quality standards.

Internal Failure Costs

Costs incurred when a defect is discovered before being received by a customer.