Analysis of the Transmission Mechanisms of Monetary Policy Provides Four

question 4

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:

Information-Processing Approach

The information-processing approach is a cognitive psychology theory that likens human thought processes to that of a computer, focusing on the way information is encoded, stored, and retrieved.

Qualitative

Pertaining to descriptions or distinctions based on qualities rather than on quantity or numerical measurements.

Assimilation

The process by which individuals or groups adopt the culture, practices, and perspectives of another group, often losing their original identity.

Accommodation

In psychology, the process of adjusting one's cognitive structures to incorporate new information; in general usage, making suitable arrangements or adjustments.