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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

Following the global financial crisis, mortgage rates reached record-low levels by 2013 and again in 2016 .

a. What effect should this have had on the economy, according to the household liquidity effect channel?

b. During much of this time, most banks raised their credit standards significantly, making it much more difficult to qualify for home loans and to refinance existing loans. How does this information alter your answer to part (a)?

"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.

many experts say that the accommodating monetary policy position could be sustained through various financial market mechanisms including financial system routesWhat evidence exists to support the credit view of monetary policy?

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From mid-2008 to early 2009 , the Dow Jones Industrial Average declined by more than 50%, while real interest rates were low or falling. What does this scenario suggest should have happened to investment?
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