The government decides to place limits on the interest rates banks can pay their depositors. Seeing that alternative investments pay higher interest rates, depositors withdraw their funds from banks and place them in bonds. Will their action have an impact on the economy? If so how?
Answer to relevant QuestionsName two distinct financial markets and describe the kind of asset traded in each. Suppose financial institutions didn’t exist but you urgently needed a loan. Where would you most likely get this loan? Using Core Principles, identify an advantage and a disadvantage this arrangement might have over ...Describe the theory of the exchange-rate channel of the monetary transmission mechanism. How, through the exchange rate, does an interest rate increase influence output? Why is this link difficult to find in practice? Suppose the policy interest rate controlled by the central bank and the inflation rate were both zero. Explain in terms of the aggregate demand-aggregate supply framework how the economy could fall into a deflationary ...In the wake of the financial crisis of 2007-2009, would you anticipate the bank lending channel becoming more or less important in the U.S. in the near future? Explain your answer.
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