Analysis of the Transmission Mechanisms of Monetary Policy Provides Four

question 106

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:

• A) It is dangerous always to associate the easing or tightening of monetary policy with a fall or a rise in short-term interest rates.
• 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) A and B only.

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Definitions:

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