When expansionary monetary policy pushes interest rates downward to a low level,
A) the velocity of money will decline, which will weaken the expansionary impact on demand and nominal GDP.
B) the velocity of money will increase, which will strengthen the expansionary impact on demand and nominal GDP.
C) the prices of stocks and other real assets can be expected to fall, which will weaken the impact of the expansionary policy on demand and nominal GDP.
D) the earnings derived from savings accounts will increase, which will stimulate demand and nominal GDP.

Question

Quizplus · Accepted Answer

When interest rates are low, people and businesses may hold onto money rather than spend or invest it, leading to a decline in the velocity of money, which can weaken the expansionary impact on demand and nominal GDP.

When Expansionary Monetary Policy Pushes Interest Rates Downward to a Low