Analysis of the Transmission Mechanisms of Monetary Policy Provides Four

question 9

Multiple Choice

Analysis of the transmission mechanisms of monetary policy provides four basic lessons for a central bank's conduct of monetary policy. These lessons include the following.

• 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 fluctuations in the level of unemployment is an important objective of monetary policy,thus providing a rationale for interest-rate 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 not important elements in various monetary policy transmission mechanisms.

---

Definitions:

Balance Sheet

A statement, as of a particular date, that shows the amount of assets owned by a business as well as the amount of claims (liabilities and owner’s equity) against these assets. Also known as statement of financial position.

Cost Of Goods Manufactured

The total production cost of goods that were completed during a specific period, including materials, labor, and overhead.

Raw Materials Inventory

Refers to the total cost of all the materials that are used in the production of goods but have not yet been transformed into finished products.

Work-In-Process Inventory

Inventory that includes goods partially completed but not yet ready for sale; found between raw materials and finished goods stages.