Why Will Persistently Restrictive Monetary Policy Often Lead to Low

question 38

Multiple Choice

Why will persistently restrictive monetary policy often lead to low interest rates?

• A)Decision-makers expect the inflation rate to rise,and this will reduce nominal interest rates.
• B)Decision-makers expect deflation,and this will keep nominal interest rates low.
• C)Decision-makers expect low rates of unemployment in the future and this will reduce nominal interest rates.
• D)Decision-makers expect higher stock prices in the future and this will reduce nominal interest rates.

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Definitions:

U.S. Interest Rates

The rate at which interest is paid by borrowers for the use of money that they borrow from lenders, specifically within the United States.

Automatic Stabilizers

Economic policies and programs, such as unemployment insurance and taxation, that automatically help stabilize an economy by increasing or decreasing with the economic cycle.

Annually Budgeted

Annually budgeted refers to the process of allocating financial resources and planning expenditures for a year ahead.

Expansionary Gap

A situation where the actual economic output exceeds the potential output significantly, often leading to inflation.