In response to a negative spending shock,a condition of lower market confidence makes monetary policy easing:
A) more effective in raising real GDP growth.
B) less effective in raising real GDP growth.
C) just as effective in raising real GDP growth as higher market confidence.
D) lead to increases in both real GDP growth and inflation.

Question

Quizplus · Accepted Answer

When there is a negative spending shock, lower market confidence can lead to a decrease in consumer and investor spending. This makes monetary policy easing less effective in raising real GDP growth because even if interest rates are lowered, individuals and firms may not be willing to borrow and invest due to the lack of confidence in the market. Therefore, option B is the best choice.

In Response to a Negative Spending Shock,a Condition of Lower