For each of the following, explain whether the response is theoretically consist

Question

For each of the following, explain whether the response is theoretically consistent with a tightening of monetary policy and identify which of the traditional channels of monetary policy is at work:

a. Firms become more likely to undertake investment projects.

This (Click to select)is consistentis not consistent with a tightening of monetary policy, which would make firms (Click to select)moreless likely to undertake investment projects through the (Click to select)interest-rateexchange-rate channel.

b. Households become less likely to purchase refrigerators and washing machines.

This (Click to select)is consistentis not consistent with a tightening of monetary policy. In the face of (Click to select)lowerhigher interest rates associated with the tightening, households would become (Click to select)morelesslikely to borrow to purchase consumer durables, such as refrigerators and washing machines. This effect works through the (Click to select)interest-rateexchange-rate channel.

c. Net exports fall.

This (Click to select)is consistentis not consistent with a tightening of monetary policy. When policy is tightened, interest rates (Click to select)risefall. There is (Click to select)an increasea decrease in investor demand for U.S. assets, leading to (Click to select)an appreciationa depreciation of the dollar. This would increase demand for (Click to select)exportsimports and reduce demand for (Click to select)exportsimports, causing a decrease in net exports through the (Click to select)interest-rateexchange-rate channel.

Explanation / Answer

A IS NOT CONSISTENT, INTEREST RATE

B CONSISTENT, HIGHER interest rates, less likely, interest rate

C is consistent, rise, increase, appreciation, imports, reduce demand for exports, exchange rate channel

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