A Negative Nominal Interest Rate May Not Be Good Policy

question 65

Multiple Choice

A negative nominal interest rate may not be good policy because

• A)could produce inefficiencies in the banking system.
• B)it makes investment go down.
• C)could produce inefficiencies at Federal Reserve Banks.
• D)it makes the output gap go up.
• E)it makes consumers too optimistic, and the economy overheats.

---

Definitions:

Exact Interest

Interest calculated based on a 365-day year, providing a precise interest calculation.

Ordinary Interest

Interest calculated on the basis of a 360-day year, often used in banking for loans and savings.

360-Day Year

A financial approximation that simplifies the calculation of interest by assuming each month has 30 days, resulting in a 360-day year.

Total Amount

The complete sum of money or quantitative count, including all relevant parts or items added together.