Final answer:
Three possible reasons why monetary policy was not able to restore expansionary growth during and after the Great Recession are the holding of excess reserves by banks, reluctance to borrow money in a recession, and the slow recovery after a recession.
Step-by-step explanation:
There are three possible reasons why monetary policy was not able to restore expansionary growth during and after the Great Recession:
- Excess Reserves: Many banks chose to hold excess reserves above the legally required level, preventing the central bank from forcing individual banks to make loans.
- Reluctance to Borrow: Sensible businesses and consumers were hesitant to borrow money in a recession due to the insecurity of firms' sales and employees' jobs, as well as the avoidance of interest payments.
- Slow Recovery: Even after a recession is officially over, it can take months or even years for private-sector firms to believe the economic climate is healthy enough to expand their workforce.