A shortcoming of monetary policy is that:
A)a severe recession may undermine business confidence to the degree that even a reduction in interest rate does not increase the investment.
B)a severe recession will increase the investment demand which contributes to inflation.
C)a severe recession will increase the interest rate and thus lowers the investment.
D)a severe recession will reduce interest rate and increases investment demand.

Question

Quizplus · Accepted Answer

While monetary policy can help to stimulate economic growth and investment, there may be instances where a severe recession leads to a lack of business confidence that cannot be remedied by lower interest rates. This means that even if the central bank reduces interest rates, businesses may still be hesitant to invest and spend due to a lack of confidence in the economy.

A Shortcoming of Monetary Policy Is That