THE ECONOMICS OF MONEY,BANKING, AND FINANCIAL MARKETS 697

CHAPTER 25 Transmission Mechanisms of Monetary Policy 665 effects on interest rates Is this statement true, false, or uncertain? Explain your answer consumer expenditure Describe how at least two of these mechanisms work 13 Predict what will happen to stock prices if the money supply rises Explain why you are making this prediction 15 The monetarists have demonstrated that the early Keynesians were wrong in saying that money doesn t matter at all to economic activity Therefore, we should accept the monetarist position that money is all that matters Do you agree? Why or why not? *14 Franco Modigliani found that the most important transmission mechanisms of monetary policy involve WEB EXERCISES Figure 25-1 on page 644 shows the relationship between estimated real rates and nominal rates for the United States Go to www.martincapital.com and click on charts and data and then on nominal versus real market rates to find data showing the spread between real rates and nominal rates Discuss the current spread difference compared to that shown most recently in Figure 25-1 What are the implications of this change? Figure 25-2 on page 647 discusses business cycles While peaks and troughs of economic activity are a normal part of the business cycle, recessions are not They represent a failure of economic policy Go to www.econlib.org/library/Enc1/Recessions.html and review the material reported on recessions a What is the formal definition of a recession? b What are the problems with the definition? c What are the three D s used by the National Bureau of Economic Research (NBER) to define a recession? d Review chart What trend is apparent about the length of recessions? Be sure to visit the MyEconLab website at www.myeconlab.com.This online homework and tutorial system puts you in control of your own learning with study and practice tools directly correlated to this chapter content