Which of the following is NOT an effect of a stimulative monetary policy?
A)The risk-free rate and the credit risk premium increase.
B)A firm's cost of debt decreases.
C)A firm's cost of equity decreases.
D)Depository institutions experience an increase in their supply of funds.

Question

Quizplus · Accepted Answer

Stimulative monetary policy, typically involving lowering interest rates or increasing the money supply, aims to boost economic activity. It generally leads to a decrease in the risk-free rate and the credit risk premium, contrary to what option A suggests. Lower interest rates reduce a firm's cost of debt (B) and can also lower the cost of equity (C) by making financing cheaper and potentially boosting economic growth and stock prices. Additionally, it increases the supply of funds to depository institutions (D) by making more money available for lending.

Which of the Following Is NOT an Effect of a Stimulative