There is a zero bound to:
A) the real money supply.
B) nominal interest rates.
C) potential output.
D) real money demand.

Question

Quizplus · Accepted Answer

The zero lower bound refers to the lower limit of nominal interest rates, which is zero. The central bank cannot set nominal interest rates below zero, as it would mean paying banks to borrow money. This can create problems during periods of deflation and low economic growth, as it limits the effectiveness of traditional monetary policy tools. The other options (A, C, D) do not have a zero bound.

There Is a Zero Bound To