What does the term 'monetary policy transmission' refer to?
Practice Questions
Q1
What does the term 'monetary policy transmission' refer to?
The process of changing interest rates
The impact of monetary policy on the economy
The regulation of foreign exchange rates
The issuance of new currency
Questions & Step-by-Step Solutions
What does the term 'monetary policy transmission' refer to?
Step 1: Understand what monetary policy is. It is how a country's central bank controls the money supply and interest rates.
Step 2: Recognize that when the central bank changes interest rates, it affects how much it costs to borrow money.
Step 3: Realize that lower interest rates make borrowing cheaper, encouraging people and businesses to take loans and spend more.
Step 4: Notice that when people and businesses spend more, it can lead to economic growth.
Step 5: Understand that monetary policy transmission is the entire process of how these changes in interest rates influence spending and, ultimately, the economy.
