Although the Federal Reserve may increase the monetary base,the larger monetary aggregates (M1 and M2)and thus aggregate demand won't increase very much in response if:
A) the interest rate is too high.
B) the tax rate is too high.
C) banks are slow to lend.
D) the economy is in recession.

Question

Quizplus · Accepted Answer

If banks are slow to lend, even if the Federal Reserve increases the monetary base, it won't lead to a significant increase in the larger monetary aggregates or aggregate demand. This is because banks act as intermediaries between the central bank and the general public, and if they are not lending out the additional funds, it won't have a multiplier effect on the economy. A, B, and D are not the best choices because although they can impact aggregate demand, they are not directly related to the transmission mechanism of monetary policy through the banking system.

Although the Federal Reserve May Increase the Monetary Base,the Larger