Analysis of the transmission mechanisms of monetary policy provides four basic lessons for a central bank's conduct of monetary policy. These lessons include:
A) It is dangerous always to associate the easing or tightening of monetary policy with a fall or a rise in short-term interest rates.
B) Monetary policy can be highly effective in reviving a weak economy even if short-term interest rates are already near zero.
C) Avoiding fluctuations in the level of unemployment is an important objective of monetary policy, thus providing a rationale for interest-rate stability as the primary long-run goal for monetary policy.
D) A and B only.

Question

Quizplus · Accepted Answer

The first lesson mentioned in option A highlights the fact that relying solely on short-term interest rates to gauge the effectiveness of monetary policy can be misleading. The second lesson mentioned in option B suggests that even when interest rates are near zero, monetary policy can still have a significant impact on the economy. Therefore, options A and B together constitute the four basic lessons of the transmission mechanisms of monetary policy.

Analysis of the Transmission Mechanisms of Monetary Policy Provides Four