Why Wouldn't the Fed Want to Drive Nominal Interest Rates

question 372

Multiple Choice

Why wouldn't the Fed want to drive nominal interest rates below zero in response to a financial crisis and recession?

• A) Negative nominal interest rates would stimulate borrowing and spending, increasing aggregate demand.
• B) Negative interest rates would stimulate so much lending that it would unfairly increase banks' power in the market.
• C) Negative nominal interest rates would cause people to withdraw their money from banks, reducing what banks could lend out to consumers and businesses.
• D) The Fed would lose the ability to raise the interest rates above zero in the future.

---

Definitions:

Afferent Lymphatic Vessel

Vessels that carry lymph fluid towards lymph nodes, allowing for the filtration of harmful substances from the body.

Efferent Lymphatic Vessels

Vessels that carry lymph away from the lymph nodes towards the venous system.

Trabeculae

The network of supporting fibers within organs, especially spongy bone, providing structural support.

Hilum

A depression or notch where structures such as blood vessels and nerves enter an organ.