In the context of monetary policy transmission, the 'Credit Channel' emphasises:
A. Only exchange-rate effects
B. The effects of monetary policy on the supply of bank loans and external finance premia
C. Only the interest-rate effects on investment
D. Only wealth effects on consumption
Answer: Option B
Solution (By JKSSB Mock Tests)
The credit channel (or financial-accelerator mechanism) stresses that monetary policy affects real activity not only through interest rates but also through changes in the availability and cost of external finance for borrowers.
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