Question

Central banks undertake Quantitative easing programs to​ ________. A. work around the problems that arise when​ short-term nominal interest rates approach zero. B. Lend money directly to private banks during financial crises C. more forcefully and directly impact long term interest rates relevant for investment decisions D. A and C only

Which of the following statements is​ true?

A.

Countercyclical monetary policy slows down the growth rate of an economy during an expansion by shifting the labor supply curve to the right.

B.

Countercyclical monetary policy slows down the growth rate of an economy during an expansion by shifting the labor demand curve to the right.

C.

Countercyclical monetary policy slows down the growth rate of an economy during an expansion by shifting the labor demand curve to the left.

D.

Countercyclical monetary policy slows down the growth rate of an economy during an expansion by shifting the labor supply curve to the left.

Answer 1

1. Option D.

• Quantity easing is an enhanced way of conducting monetary policy by the Fed.
• This includes the purchase of long term securities by the Fed in order to influence long term interest rates.
• It solves problems that arise when the short term interest rates approach zero.
• Hence it is considered as an efficient monetary policy action undertaken by Central Bank.

2. Option C.

• Countercyclical monetary policy tools are those tool's that are used by Fed in order to bring down the excess growth of an expanding economy.
• It does so by decreasing the demand for labour.
• This will shift the labour demand curve to the left.