The monetary transmission mechanism that links monetary policy to GDP through real interest rates and investment spending is called the
A)traditional interest-rate channel.
B)Tobins' q theory.
C)wealth effects.
D)cash flow channel.

Question

Quizplus · Accepted Answer

The traditional interest-rate channel is the monetary transmission mechanism that links monetary policy to GDP through real interest rates and investment spending. This occurs because changes in the money supply affect market interest rates, which influences investment decisions by firms and ultimately impacts overall economic activity. Tobin's q theory refers to the relationship between asset prices and investment spending, while wealth effects and the cash flow channel are also important channels but not the specific mechanism described in the question.

The Monetary Transmission Mechanism That Links Monetary Policy to GDP