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.

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