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Chapter 26: Q.15 (page 691)

Why does the credit view imply that monetary policy has a greater effect on small businesses than on large firms?

Short Answer

Expert verified

Small firms will be particularly affected by monetary policy changes that affect lending access.

Step by step solution

01

Concept introduction.

The government bank's monetary policy, which includes the cost of capital and money stock control, is known as monetary policy. The banking system employs monetary policies goals such as development, usage, and fluidity.

02

Explanation of solution.

Small firms are far more reliant on credit facilities than big corporations, hence monetary policy has a stronger impact on them than huge corporations. Small firms will be particularly affected by monetary policy changes that affect lending access.

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Most popular questions from this chapter

"Considering that consumption accounts for nearly two-thirds of total GDP, this means that the interest rate, wealth, and household liquidity channels are the most important monetary policy channels in the U.S." Is this statement true, false, or uncertain? Explain your answer.

"The costs of financing investment are related only to interest rates; therefore, the only way that monetary policy can affect investment spending is through its effects on interest rates." Is this statement true, false, or uncertain? Explain your answer.

How can the interest rate channel still function when short term nominal interest rates are at the zero lower bound?

Leo Krippner, an economist at the Reserve Bank of New Zealand, publishes an 'Effective Monetary Stimulus' (EMS) measure, designed to gauge the stance of U.S. monetary policy. Go to the website http://www,rbnz.govt NZ/research-and-publications/research-programme/ additional-research/measures-of-the-stance-of-united states-monetary-policy and examine the EMS measure. Is monetary policy becoming tighter, or looser according to the measure?

"If the fed funds rate is at zero, the Fed can no longer implement effective accommodative policy." Is this statement true, false, or uncertain? Explain.
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