EBK THE ECONOMICS OF MONEY, BANKING AND
EBK THE ECONOMICS OF MONEY, BANKING AND
4th Edition
ISBN: 9780100668201
Author: Mishkin
Publisher: YUZU
bartleby

Concept explainers

Question
Book Icon
Chapter 25, Problem 1LO
To determine

To Write:

The summery of the transmission mechanisms through which monetary policy can affect the real economy.

Expert Solution & Answer
Check Mark

Explanation of Solution

The transmission mechanisms through which monetary policy could affect the real economy are:

  1. Interest rates − Reduction in the interest rates because of the monetary policy reduces the costs, creating expansion of lending. This results in more credit to private sector. In the securities market, the demand increases the prices and finally results in a reduction in the real interest rate.
  2. Financial asset prices − The monetary policy is able to push for increase in financial assets prices, which leads to an increase in the market value of the firms and also influences the household wealth.
  3. Exchange rate − Exchange rates are strongly impacted by monetary policies. When the circulation currency amount is increased, the nominal interest rates are lowered and this causes depreciation in nominal exchange rate resulting in more aggregate income.
  4. Domestic credit − This relates to financing granted to companies, securities portfolio and other such assets of commercial banks. The interest rate changes allow commercial banks to be more liquid by increasing their reserves. Provision of credit to private sector is one method of investing the liquidity.
Economics Concept Introduction

Introduction:

Monetary policy- To attain growth and stability of an economy, the measures taken by the Central Bank to ensure money availability, rate of interest of the money and to control the money supply are referred to as monetary policies. This is the relationship between the borrowing rate of money and the total money supply. Inflation, exchange rates and economic growth can be influenced by controlling both or either the rate of interest or total money supply using various tools of monetary policy.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Knowledge Booster
Background pattern image
Economics
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Text book image
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:9780190931919
Author:NEWNAN
Publisher:Oxford University Press
Text book image
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Text book image
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Text book image
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Text book image
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Text book image
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education