Transmission mechanisms:
A) can amplify positive shocks.
B) can amplify negative shocks.
C) can amplify both positive and negative shocks.
D) amplify neither positive nor negative shocks.

Question

Quizplus · Accepted Answer

Transmission mechanisms refer to the way in which shocks or disturbances in one sector of an economy can spread to other sectors, amplifying both positive and negative shocks. For example, a positive shock in the housing market can lead to an increase in construction and housing-related purchases, which may boost other sectors of the economy. Conversely, a negative shock to the financial sector can lead to a decrease in borrowing and lending, leading to a slowdown in economic activity across many sectors. Therefore, transmission mechanisms can amplify both positive and negative shocks.

Transmission Mechanisms