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.

Question

Quizplus · Accepted Answer

If only short-term interest rates are affected by monetary stimulus and not long-term interest rates, it means that investors and consumers do not believe that the stimulus will have a long-term impact on the economy. This lack of confidence can limit the effectiveness of monetary policy. A and C are not the correct choices as banks lending too much money and consumers spending too much money are not typically seen as negative outcomes of monetary stimulus, but rather positive ones.

Monetary Stimulus Will Fail If