Analysis of the Transmission Mechanisms of Monetary Policy Provides Four

question 1

Multiple Choice

Analysis of the transmission mechanisms of monetary policy provides four basic lessons for a central bank's conduct of monetary policy.Which of the following is not one of these lessons?

• A) Rising interest rates indicate a tightening of monetary policy, whereas falling interest rates indicate an easing of monetary policy.
• B) Monetary policy can be highly effective in reviving a weak economy even if short-term interest rates are already near zero.
• C) Avoiding unanticipated fluctuations in the price level is an important objective of monetary policy, thus providing a rationale for price stability as the primary long-run goal for monetary policy.
• D) Other asset prices beside those on short-term debt instruments do not contain important information about the stance of monetary policy because they are important elements in various monetary policy transmission mechanisms.

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Definitions:

Free-Rider Problem

A situation where individuals consume more than their fair share of a public resource, or shoulder less than a fair share of the costs of its production, without contributing to the resource's provision.

Air Pollution

The presence of harmful or excessive quantities of substances, including gases, particulates, and biological molecules, in the Earth's atmosphere, causing diseases, allergies, or environmental damage.

Donations

Voluntary transfers of resources, including money or goods, from one party to another without the expectation of receiving something in return.

External Benefits

The positive effects of a production or consumption activity on third parties who are not directly involved in the transaction.