INTAN PERMATA SARI

014201500121
MGT BF-2
GENERAL BANKING THEORY
Summary Chapter 8: The Monetary Policy Transmission Mechanism: How
Changes in Interest Rates Affect Households, Firms, Financial Institutions,
Economic Activity, and Inflation
Changes in real interest rates can affect savings and investment decisions in
households and companies, as well as economic activity, inflation, and employment.
Monetary policy is an attempt to control the macroeconomic situation in order to run
as desired by regulating the amount of money circulating in the economy. A monetary
policy can affect household spending and save decisions through 6 main effects,
among others the intertemporal substitution effect, the income effect, the wealth
effect, the exchange rate effect, the expectations effect, and second-round effects.
Monetary policy can also affect spending, save and investment behavior of companies
through the 5 main effects, among others the funding costs effect, the asset price
effect, the exchange rate effect, the expectations effect, and second-round effects.
Monetary policy has an impact on household consumption and company investment
decisions also can send via the credit channel and channel balance, which itself works
through financial institutions. Because too many steps through which monetary policy
is transmitted through the economy, the main effect on output, inflation, and
employment will have a long and variable lags.