At the end of 2008, the federal funds rate in the United States was close to zero. Which of the following is a major concern associated with such a low rate?
A) That traditional monetary policy will have no impact on the economy.
B) Such a low rate spurs excessive consumption and investment spending which may lead to
inflation.
C) Such a low rate spurs excessive consumption and investment spending which may lead to
deflation.
D) Economic agents might be unwilling to borrow in anticipation of even lower interest rates.
Ans: A) That traditional monetary policy will have no impact on the economy.
You might also like to view...
Gretchen expects the price level to rise from 104 this year to 108 next year, and she is able to incorporate these expectations into her wage contract. If the price level rises to 106 next year instead of 108, which of the following will occur?
A) Gretchen's real wage will be unchanged. B) Gretchen's real wage may rise or fall, depending on the unemployment rate. C) Gretchen's real wage will fall. D) Gretchen's real wage will rise.
Fiscal policy consists of
a. taxes and interest rates. b. government purchases and defense spending. c. the money supply and taxes. d. taxes and government spending.