bain_y_howells__monetary_economics__policy_and_its_theoretical_basis

icy by following a monetary rule (see Chapter 9) and believe that the longrun
impact of money supply changes falls only on prices not on output (see
Chapter 8).
Post-Keynesian:
Post-Keynesians accept the propositions listed under Keynes above but add
that the money stock is endogenous and thus cannot be controlled by the
Central Bank even if it would like to do so.
Key concepts in this chapter
transmission mechanism of
monetary policy
interest rate control
monetary base control
cost of borrowing
inflationary expectations
real money balances
Questions and exercises
THE TRANSMISSION MECHANISM OF MONETARY POLICY 205
portfolio effects
wealth effects
speculative demand for money
normal rate of interest
liquidity trap
net wealth of the private sector
1. How might the impact of a change in UK interest rates be affected by:
(a) demand conditions in the USA;
(b) the expected future policy of the Federal Reserve Board?
2 Following a stock exchange crash in 1987, there was a temporary fear of
a recession because of an anticipated reduction of consumption expenditure.
(a) What was the basis of this fear?
(b) Was the fear justified?
(c) Would things be any different now?
3. What difference would it make to the strength of UK monetary policy if
all mortgages were fixed-interest-rate loans:
(a) in the short run; (b) in the long run?
4. How are interest rate changes likely to affect the distribution of income
between:
(a) rich and poor; (b) borrowers and lenders; (c) old and young?