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According to Tobin's q theory, when equity prices are high the market price of existing
capital is ____ relative to new capital, so expenditure on fixed investment is ____.
A) cheap; low
B) expensive; low
C) cheap; high
D) expensive; high
Answer: D
Diff: 2 Type: MC Page Ref: 641
Skill: Recall
Objective List: 27.1 Outline the transmission mechanisms of monetary policy
Franco Modigliani has found that an expansionary monetary policy can cause stock market
prices to ____ and consumption to ____.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
Answer: A
Diff: 2 Type: MC Page Ref: 641
Skill: Recall
Objective List: 27.1 Outline the transmission mechanisms of monetary policy
The ____ proposes that two types of monetary transmission channels arise as a result of
problems in credit markets
A) interest rate channel
B) asset price channel
C) credit view
D) Tobin q theory
Answer: A
Diff: 1 Type: MC Page Ref: 639
Skill: Applied
Objective List: 27.1 Outline the transmission mechanisms of monetary policy
A rise in stock prices ____ the net worth of firms and so leads to ____ investment
spending because of the reduction in moral hazard.
A) raises; higher
B) raises; lower
C) reduces; higher
D) reduces; lower
Answer: A
Diff: 2 Type: MC Page Ref: 642
Skill: Recall
Objective List: 27.1 Outline the transmission mechanisms of monetary policy