Which of the following best describes the effect of the zero interest rate policy implemented in December 2008?
A) Its effectiveness was limited by the zero lower bound problem.
B) It created a surge in inﬂation.
C) It forced nominal interest rates to below zero.
D) It had the desired effect, promoting full recovery by 2010.

Question

Quizplus · Accepted Answer

The zero interest rate policy implemented in December 2008 was limited in its effectiveness due to the zero lower bound problem. This means that nominal interest rates cannot go below zero, which limits the ability of the policy to stimulate further economic growth. It did not create a surge in inflation, force nominal interest rates below zero, or have the desired effect of promoting full recovery by 2010.

Which of the Following Best Describes the Effect of the Zero