When Interest Rates Are near Zero and Traditional Monetary Policy

question 99

Multiple Choice

When interest rates are near zero and traditional monetary policy is ineffective, the Fed or other central bank may resort to a strategy referred to as quantitative easing. What does this strategy involve?

• A) allowing interest rates to rise slowly by providing substantial reserves for as long as is necessary to avoid inflation
• B) reducing the money supply to raise the interest rates slowly without discouraging spending
• C) keeping interest rates very low by providing substantial reserves for as long as is necessary to avoid deflation and encourage spending
• D) increasing the money supply and interest rates at a constant rate to stimulate economic activity

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Definitions:

Genetic Factors

Those hereditary qualities and genes inherited from parents that influence physical and behavioural characteristics.

Depression

A mood disorder that causes a persistent feeling of sadness and loss of interest, affecting how one feels, thinks, and handles daily activities.

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Pertaining to or situated within something; inner, especially referring to processes or phenomena occurring within an entity or organism.

Stable

Referring to a condition or situation that is not undergoing significant change or variation and is steady or unchanging over time.