Due to Asymmetric Information in Credit Markets,monetary Policy May Affect

question 21

Multiple Choice

Due to asymmetric information in credit markets,monetary policy may affect economic activity through the balance sheet channel,where an increase in the money supply

• A)raises stock prices,lowering the cost of new capital relative to firms' market value,thus increasing investment spending.
• B)raises firms' net worth,decreasing adverse selection and moral hazard problems,thus increasing banks' willingness to lend to finance investment spending.
• C)raises the level of bank reserves,deposits,and bank loans,thereby raising spending by those individuals who do not have access to credit markets.
• D)lowers the value of the dollar,increasing net exports and aggregate demand.

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