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:

Labor Efficiency Variance

The difference between the actual number of labor hours worked and the standard hours expected, multiplied by the standard labor rate.

Labor Rate Variance

The difference between the actual cost of labor and its expected cost based on standards or budgets.

Direct Labor Employees

Workers who are directly involved in the manufacturing of products, including those who operate machinery, assemble products, or perform manual labor that can be directly attributed to specific goods or services.

Favorable Variances

Differences between actual and budgeted or standard cost figures that are financially beneficial to a company.