According to Proponents of the Interest-Rate-Based Monetary Policy Transmission Mechanism

question 18

Multiple Choice

According to proponents of the interest-rate-based monetary policy transmission mechanism, any increase in the money supply

• A) is effective in increasing Gross Domestic Product (GDP) only if it causes an outward shift of the aggregate supply curve.
• B) will increase Gross Domestic Product (GDP) only if interest rates fall and investment is sensitive to decreasing interest rates.
• C) causes velocity to increase, and so in the short run nominal Gross Domestic Product (GDP) must increase.
• D) will move the economy from the "liquidity trap" during times of recession if interest rates fall enough to stimulate private investment.

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Definitions:

Monthly Return

The investment profit or loss during a one-month period, often used to assess performance.

Investment

The allocation of resources, usually money, in the expectation of generating an income or profit.

VaR (Value At Risk)

A statistical technique used to measure and quantify the level of financial risk within a firm, portfolio, or position over a specific time frame.

Tail Risk

The risk of an investment moving more than three standard deviations from its current price, often associated with unpredictable, extreme events.