If a contractionary monetary policy lowers the price level by more than expected, it raises the real value of consumer debt. This reduces consumer expenditure through
A) the bank lending channel.
B) Tobin's q.
C) the traditional interest-rate channel.
D) the household liquidity effect.
26) An expansionary monetary policy may cause asset prices to rise, thereby reducing the likelihood of financial distress and causing consumer durable and housing expenditures to rise. This monetary transmission mechanism is referred to as
A) the household liquidity effect.
B) the wealth effect.
C) Tobin's q theory.
D) the cash flow effect.
27) According to the household liquidity effect, an expansionary monetary policy causes a ________ in the value of households' financial assets, causing consumer durable expenditure to ________.
A) decline; rise
B) rise; rise
C) rise; fall
D) decline; fall
28) According to the household liquidity effect, higher stock prices lead to increased consumption expenditures because consumers
A) feel more secure about their financial position.
B) want to sell stocks and spend the proceeds before stock prices fall.
C) believe that their wages will increase due to increased profitability of firms.
D) can now afford more expensive imports.
29) Corporate scandals involving Enron and Arthur Andersen reduced investment and aggregate spending because these scandals
A) forced the Fed to raise interest rates.
B) caused appreciation of the dollar.
C) worsened adverse selection and moral hazard.
D) caused bank failures.
30) In a period of deflation, when there is a declining price level, ________ nominal interest rates do not necessarily indicate that the cost of borrowing is ________ or that monetary policy is easy.
A) low; low
B) low; high
C) high; low
D) high; high
31) In a period of deflation, when there is a declining price level, low nominal interest rates do not necessarily indicate that the cost of borrowing is ________ or that monetary policy is ________.
A) low; tight
B) low; easy
C) high; tight
D) high; easy
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