Question

How do near-zero interest rates limit the ability of expansionary monetary policy to work?

Options:
A) Stimulate economic growth
B) Encourage borrowing
C) Discourage spending
D) Facilitate investment

Answer 1

Near-zero interest rates can limit the ability of expansionary monetary policy to work in stimulating economic growth, encouraging borrowing, and discouraging spending.

Step-by-step explanation:

Near-zero interest rates can limit the ability of expansionary monetary policy to work in several ways:

1. Stimulate economic growth: Near-zero interest rates may not provide enough incentive for businesses to borrow and invest in new projects, leading to stagnant economic growth.
2. Encourage borrowing: With near-zero interest rates, borrowing may be less attractive for individuals and businesses, as the cost of borrowing is minimal. This may lead to lower borrowing and less stimulating effect on the economy through increased consumption and investment.
3. Discourage spending: Near-zero interest rates may discourage individuals from saving, as their returns on savings are very low. Instead, they may choose to spend their money, thereby reducing the effectiveness of expansionary monetary policy.