Monetary Policy Loses Its Effectiveness in All of the Following

question 49

Multiple Choice

Monetary policy loses its effectiveness in all of the following situations EXCEPT

• A)when the IS curve is vertical.
• B)when the LM curve is nearly horizontal.
• C)when interest rate controlled by the Fed reaches zero.
• D)when the IS curve is horizontal.

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Definitions:

Opportunity Loss

The difference in value between the chosen option and the best possible option that was not chosen.

Optimal Alternative

The best or most effective option among a set of alternatives, under given conditions.

Expected Monetary Value(EMV)

A calculated average of all possible outcomes of a decision, where each outcome is weighted by its probability of occurring and its monetary impact.

Opportunity Loss Table

A table used in decision making to show the lost opportunities or costs associated with not choosing the best alternative.