Question

"Considering that consumption accounts for nearly two-thirds of total GDP, this means that the interest rate, wealth, and household liquidity channels are the most important monetary policy channels in the U.S." Is this statement true, false, or uncertain? Explain your answer.

Short answer

"The most significant monetary policy channel is the interest rate, wealth, and household liquidity," is uncertain

Step-by-step solution

Step 1. Concept of  Monetary policy

Monetary policy channels are the channels via which the Federal Reserve System's monetary policies affect macroeconomic activity.

Step 2. Explanation

The statement in question is ambiguous. Even though consumption accounts for two-thirds of overall GDP (gross domestic product), interest rates, wealth, and household liquidity channels are all likely to play a role, yet few people disagree. Advocates of the credit view believe that credit market effects are more important than interest rate effects and that the credit perspective primarily affects investments. The influence of credit views on monetary policy adjustments may be more powerful than the effects of consumption views.