Question

From $2008$ to $2017$ , auto loan rates in the United States have declined from around $8\%$ to near historic lows of around $4.5\%$. At the same time, auto sales increased to near historic high levels by $2017$ . How, if at all, does this relate to the monetary transmission mechanisms?

Short answer

Bank reserves and deposits rise as a result of expansionary monetary policy, increasing credit availability

Step-by-step solution

Step 1. Concept of monetary transmission mechanism 

The monetary transmission mechanism is a process that occurs when monetary policy actions affect asset prices and economic conditions.

Step 2. Explanation

As a result of the Fed's expansionary monetary policy, bank reserves and deposits rise, enhancing credit availability.. Because the majority of people rely on bank loans to fund their investments, the greater availability of bank loans has led to an increase in asset spending.

As a result of the monetary transmission mechanism being loosened, the drop in vehicle loan rates from$2008$to $2017$enhanced auto sales.