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Chapter 26: Q.16 (page 691)

Why might the bank lending channel be less effective today than it once was?

Short Answer

Expert verified

As a result of the worldwide drop in the industry of bank loans, the banking lending mechanism has now become feeble.

Step by step solution

01

Concept Introduction.

The assumption that any rise in the interest rate impacts the number of loans to pay out by a commercial banks is known as the bank lending channel.

02

Step 2; Explanation of solution.

The following are some of the reasons why bank lending channels are less effective:

Bank restrictions that are more permissive have made life simpler to raise cash from previously unsuitable parties. The federal has decreased its influence over the banks in the form of the shift in legislation in response to the policy shift, making the banker routes less functional.

The bank lending system has become powerless as a result of the international fall in the sector of bank loans.

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Most popular questions from this chapter

Describe an advantage and a disadvantage of the fact that monetary policy has so many different channels through which it can operate.

"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.

From 2008 to 2017 , auto loan rates in the United States have declined from around 8% to near historic lows of around 4.5%. At the same time, auto sales increased to near historic high levels by 2017 . How, if at all, does this relate to the monetary transmission mechanisms?

How are the wealth effect and the household liquidity effect similar? How are they different?

If adverse selection and moral hazard increase, how does this affect the ability of monetary policy to address economic downturns?
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