Monetary stimulus will fail if
A)Banks lend too much money.
B)Short-term interest rates are affected but long-term interest rates are not.
C)Consumers spend too much money,creating a shortage of money.
D)Lower interest rates cause households to not refinance mortgages and not apply for new consumer loans.

Question

Quizplus · Accepted Answer

If monetary stimulus only affects short-term interest rates and not long-term interest rates, it may not have the desired effect on the economy. This is because long-term interest rates affect consumer spending and business investment decisions, which in turn affects economic growth. Therefore, if monetary stimulus only affects short-term rates, it may not stimulate enough economic activity to achieve the desired result. The other options (A, C, and D) are not accurate because banks lending too much money, consumers spending too much money, and households not refinancing mortgages or not applying for new consumer loans would not necessarily cause monetary stimulus to fail on its own.

Monetary Stimulus Will Fail If