8. Study Questions and Problems #8 The monetarist monetary policy transmission m

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8. Study Questions and Problems #8 The monetarist monetary policy transmission mechanism follows the following chain. A change in monetary policy changes the money supply. The change in the money supply changes the aggregate demand curve. A change in the aggregate demand curve changes prices, real GDP, and employment What are some reasons that this transmission mechanism could fail? In other words, what are reasons monetary policy could change but prices, real GDP, and employment do not change? Check all that apply Banks lend out too much and the increased investment shifts aggregate demand dramatically. Banks increase their reserves and do not increase lending consumers fail to spend extra money they receive, Grade It Now Save & Continue Continue without saving

Explanation / Answer

Banks increase their reserves and do not increase lending.

Monetary policy transmission can fail when banks and private sector borrowers are reluctant to expand the inflationary credit.

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