Franco Modigliani has found that an expansionary monetary policy can cause stock market prices to ________ and consumption to ________.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
20) Since Regulation Q has been abolished, there have been doubts raised about the size of the effect of the ________ channel.
A) balance sheet
B) bank lending
C) cash flow
D) unanticipated price level
21) A rise in stock prices ________ the net worth of firms and so leads to ________ investment spending because of the reduction in moral hazard.
A) raises; higher
B) raises; lower
C) reduces; higher
D) reduces; lower
22) Because of the presence of asymmetric information problems in credit markets, an expansionary monetary policy causes a ________ in net worth, which ________ the adverse selection problem, thereby ________ increased lending to finance investment spending.
A) decline; increases; encouraging
B) rise; increases; discouraging
C) rise; reduces; encouraging
D) decline; reduces; discouraging
23) Due to asymmetric information in credit markets, monetary policy may affect economic activity through the balance sheet channel, where an increase in the money supply
A) raises stock prices, lowering the cost of new capital relative to firms' market value, thus increasing investment spending.
B) raises firms' net worth, decreasing adverse selection and moral hazard problems, thus increasing banks' willingness to lend to finance investment spending.
C) raises the level of bank reserves, deposits, and bank loans, thereby raising spending by those individuals who do not have access to credit markets.
D) lowers the value of the dollar, increasing net exports and aggregate demand.
24) An expansionary monetary policy raises firms' cash flows by ________ interest rates.
A) lowering real
B) lowering nominal
C) raising real
D) raising nominal
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