Which of the following reduced the demand stimulus effects of the Fed's low interest rate policy pursued during, and after, the financial crisis of 2008-2009?
A) Declining stock prices during 2010-2012.
B) A reduction in the velocity of money.
C) An increase in earnings derived from money market accounts, saving deposits, and similar saving instruments.
D) A sharp increase in the rate of inflation during 2009-2012.

Question

Quizplus · Accepted Answer

A reduction in the velocity of money reduces the impact of the Fed's low interest rate policy by decreasing the speed at which money is spent and circulated throughout the economy. This phenomenon can occur when consumers and businesses become more cautious about spending and hold onto their money for longer periods of time, which slows down economic growth and reduces the effectiveness of the Fed's efforts to spur demand. The other choices listed are not likely to have a large impact on the demand stimulus effects of the Fed's policy.

Which of the Following Reduced the Demand Stimulus Effects of the Fed's