Monetary policy pushed interest rates to historically low levels during 2002-2004, but was more restrictive during 2005-2006. Economic analysis indicates that this policy
A) helped to smooth the ups and downs of the business cycle during this era.
B) contributed to the boom and bust of the housing market, and thereby the instability of this era.
C) contributed to the housing bust of 2002-2004, but helped to restore stability to the housing market in 2006-2008.
D) helped to bring inflation under control during 2002-2004, and thereby established a foundation for a strong recovery during 2007-2010

Question

Quizplus · Accepted Answer

The historically low interest rates set by monetary policy during 2002-2004 contributed to the housing boom, as many individuals were able to take out mortgages they could not necessarily afford. The more restrictive policy during 2005-2006, however, may have contributed to the subsequent bust. The instability of the housing market during this time had wider economic effects and exacerbated the Great Recession.

Monetary Policy Pushed Interest Rates to Historically Low Levels During