Which of the following weakened the demand stimulus effects of the fed's low interest rate policy during the years following the 2008-2009 recession?
A) Rising stock prices in response to the low-interest rate policy.
B) The lower cost of borrowing to undertake business investment.
C) An increase in the velocity of money.
D) A reduction in earnings of senior citizens and others from money market accounts, saving deposits, and similar forms of savings.

Question

Quizplus · Accepted Answer

A reduction in earnings of senior citizens and others from money market accounts, saving deposits, and similar forms of savings weakened the demand stimulus effects of the fed's low interest rate policy. This demographic typically spends less and saves more, so if their savings are earning less interest, they will have less disposable income to spend, which weakens the demand stimulus effects of the low-interest rate policy. Rising stock prices (A) and lower borrowing costs for businesses (B) would have increased demand stimulus effects by stimulating investment and consumer confidence. An increase in velocity of money (C) would also likely have increased the demand stimulus effects by increasing the rate at which money changes hands in the economy.

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