Question

Monetary policy is more effective if: A. the inflation rate in the country has hovered close...

Monetary policy is more effective if:

A. the inflation rate in the country has hovered close to zero for the last three years because nominal interest rates will be lower so expansionary monetary policy will be more effective.

B. the inflation rate in the country has averaged 3 percent for the last three years because nominal interest rates will be lower so expansionary monetary policy will be more effective.

C. the inflation rate in the country has averaged 3 percent for the last three years because nominal interest rates will be higher so the Federal Reserve will not have to worry about hitting the zero lower bound.

D. the inflation rate in the country has hovered close to zero for the last three years because real interest rates will be lower so expansionary monetary policy will be more effective.

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Answer #1

Solution:-Option C is correct.

C. the inflation rate in the country has averaged 3 percent for the last three years because nominal interest rates will be higher so the Federal Reserve will not have to worry about hitting the zero lower bound.

Explaination:-Monetary policy is more effective if the inflation rate in the country has averaged 3 percent for the last three years because nominal interest rates will be higher so the Federal Reserve will not have to worry about hitting the zero lower bound.

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