When Interest Rates Are near Zero and Traditional Monetary Policy

question 34

Multiple Choice

When interest rates are near zero and traditional monetary policy is ineffective, the Fed or other central bank resorts 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:

Categorical Variable

A variable that can take on a limited, and usually fixed, number of possible values, grouping individuals into categories.

Random Group Assignment

A method in experimental design to ensure every participant has an equal chance of being assigned to any group, thus minimizing preexisting differences between those assigned to different groups.

Construct

An abstract concept that is specifically chosen or created to explain a given phenomenon.

True-Experimental Design

True-experimental design is a type of experimental research methodology that involves the manipulation of variables, control of extraneous variables through random assignment, and the comparison between a control group and one or more experimental groups to determine causal relationships.