In this paper, Benjamin Friedman applies his structural-sectoral model of the determination of long-term interest rates to investigate whether his approach and empirical results have a significant bearing on the estimated time path by which the American economy responds to some standard types of monetary and fiscal policy actions. He endeavors to answer this question by a skillful utilization of the MPS model. He accepts the entire structure of that model including the basic hypothesis that the short-term interest rate is determined by the interaction between the money supply and aggregate output. However, he replaces the term-structure equation which, in that model, determines the long-term corporate bond rate by his structuralsectoral model. I must note at the outset my basic sympathy with the approach of Friedman and of his school, represented at this conference by Vance Roley, to the determination of the long-term rate, or more precisely, of the spread between the short-term and the long-term rate. I am, of course, deeply committed to the habitat hypothesis that is, to the hypothesis that participants in the bond market have well-defined preferences as to the term for which they wish to lend or borrow . Under uncertainty and risk aversion, these preferences imply that the interest rate for any given maturity may differ from the value implied by the expected paths of the future short rate, by positive or negative risk premia. Friedman's model in essence hypothesizes that the various sectors that he models both on the demand and the supply side of the bond market may be characterized by different habitats (as well as possibly risk aversion) and that accordingly a redistribution of the aggregate flow of demand and supply between different transactors may result in a change in the risk premia. Differences in expectations, as well as differential speeds of adjustments of portfolios to their long-run equilibrium structure, may further contribute in the short run to make risk premia respond to the way in which investable funds happen to be distributed among sectors. I do, however, have some qualms about the implementation of this approach. His