Monetary policy first affects financial markets and institutions, then the real economy.

Question

Quizplus · Accepted Answer

Monetary policy actions, such as changes in interest rates or the money supply, first impact financial markets (e.g., bond, stock markets) and financial institutions by altering the cost of borrowing and the return on savings. These initial effects then transmit to the broader economy, influencing investment, consumption, and ultimately, employment and inflation.

Monetary Policy First Affects Financial Markets and Institutions, Then the Real