4: Monetary Policy

Question 1

Transmission Mechanism:

Consumption

Answer 1

• Time Shift
• Cash Flow
• Asset Price
• Expectation

Question 2

Transmission Mechanism:

Planned Investment

Answer 2

• Cash Flow

- Expectation

Question 3

Transmission Mechanism:

Net Export

Answer 3

• ER

- Cash Flow

Question 4

Strength of MP

Answer 4

• Shorter Inside Lag
• Greater Political Neutrality
• Very Effective during Boom
• Most Effective under Floating ER
• Transparency
• No Crowding Out Effect

Question 5

Weakness of MP

Answer 5

• Longer Outside Lag
• Less Effective during Recession
• Blunt Policy Instrument
• Not the only Factor Affecting ER
• Ineffective against Cost Push Inflation