Question

''Pushing on a string" is monetary policy refers to the situation in which,

A) Even though intrest rates are held below the "natural rate" by the central bank, entrepreneurs arent borrowing from the commercial banks because of regime uncertainty

B) Government borrowing crowds out private borrowing in the loanable funds market

C) Governement does not spend enough to get the economy going

Answer 1

Answer: A) Even though intrest rates are held below the "natural rate" by the central bank, entrepreneurs arent borrowing from the commercial banks because of regime uncertainty.

Pushing on a string is a metaphor for the limits of monetary policy and the impotence of central banks. Monetary policy sometimes only works in one direction because businesses and households cannot be forced to spend if they do not want to. Increasing the monetary base and banks’ reserves will not stimulate an economy if banks think it is too risky to lend and the private sector wants to save more because of economic or some other uncertainty.