FIGURE 25-3 TRANSMISSION MECHANISMS COMPONENTS OF SPENDING (GDP) CONSUMER DURABLE EXPENDITURE RESIDENTIAL HOUSING INVESTMENT NET EXPORTS INVESTMENT INVESTMENT Lending activity Moral hazard, adverse selection Stock prices GROSS DOMESTIC PRODUCT CONSUMPTION RESIDENTIAL HOUSING INVESTMENT Bank loans Financial wealth Tobin s q Exchange rate Bank deposits Stock prices Stock prices Real interest rates Real interest rates Monetary policy Monetary policy Monetary policy Monetary policy Monetary policy BALANCE SHEET CHANNEL BANK LENDING CHANNEL WEALTH EFFECTS Monetary policy TOBIN'S q THEORY OTHER ASSET PRICE EFFECTS EXCHANGE RATE EFFECTS ON NET EXPORTS TRADITIONAL INTERESTRATE EFFECTS MONETARY POLICY INVESTMENT Lending activity Moral hazard, adverse selection Cash flow Nominal interest rates Monetary policy CASH FLOW CHANNEL CREDIT VIEW INVESTMENT Lending activity Moral hazard, adverse selection Unanticipated price level Monetary policy CONSUMER DURABLE EXPENDITURE RESIDENTIAL HOUSING Probability of financial distress Financial wealth Stock prices Monetary policy UNANTICIPATED HOUSEHOLD LIQUIDITY PRICE LEVEL EFFECTS CHANNEL 653 The Link Between Monetary Policy and GDP: Monetary Transmission Mechanisms