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:

Indispensable

Absolutely necessary or essential for something to function properly or to achieve a specific result.

Most Skilled

Referring to individuals or entities that possess the highest level of ability or expertise in a specific area or field.

Task Outcome

The result or end product of carrying out a specific task.

Disjunctive Tasks

Tasks for which the group's performance is determined by the performance of the best group member.