If short-term interest rates hit the lower zero bound and the Fed buys a large quantity of long-term assets to reduce long-term interest rates directly, the Fed is employing
A)a zero lower bound policy
B)a federal funds policy
C)a policy of monetary transmission
D)a policy of quantitative easing
E)anticipatory monetary policy

Question

Quizplus · Accepted Answer

The policy described in the question is known as quantitative easing. When short-term interest rates reach their lower bound and the Fed wants to further stimulate the economy, it can buy long-term assets such as government bonds to lower long-term interest rates directly. This is a form of quantitative easing, as the Fed is increasing the quantity of assets it holds.

If Short-Term Interest Rates Hit the Lower Zero Bound and the Fed