(Last Word) Which of the Following Best Explains Why There

question 109

Multiple Choice

(Last Word) Which of the following best explains why there may exist a negative lower bound for interest rates, beyond which lowering interest rates is counterproductive?

• A)Depositors will be willing to accept small negative interest rates in exchange for the convenience of being able to make electronic transactions.
• B)The rate of deflation that one would expect at the negative lower bound would keep real interest rates at or above zero.
• C)Because of the premium that banks charge on loans over what they pay depositors, up to a point they are always guaranteed to earn a positive rate of interest.
• D)Negative lower bounds refer only to real rates of interest, not nominal rates.

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