Which of the following economic variables is affected when the central bank adopts a countercyclical monetary policy?
A) Government spending
B) Transfer payments
C) Tax rates
D) Interest rates

Question

Quizplus · Accepted Answer

Countercyclical monetary policy refers to the actions taken by the central bank to offset the fluctuations in the business cycle. This is achieved by adjusting the interest rates. When the economy is in a downturn, the central bank reduces interest rates to stimulate borrowing and spending, and when the economy is overheating, the central bank raises interest rates to curb inflation. Therefore, the correct option is D. Government spending, transfer payments, and tax rates are all part of fiscal policy, which is the responsibility of the government and not the central bank.

Which of the Following Economic Variables Is Affected When the Central