In response to a severe recession, the Fed more than doubled the monetary base and pushed short-term interest rates to near zero during 2009-2010. What happened in 2011?
A) The inflation rate soared to double-digit levels.
B) Aggregate demand increased and the economy recovered rapidly.
C) The large budget deficit of the earlier years was transformed into a budget surplus.
D) The high rate of unemployment continued.

Question

In response to a severe recession, the Fed more than doubled the monetary base and pushed short-term interest rates to near zero during 2009-2010.  What happened in 2011?
A) The inflation rate soared to double-digit levels.
B) Aggregate demand increased and the economy recovered rapidly.
C) The large budget deficit of the earlier years was transformed into a budget surplus.
D) The high rate of unemployment continued.

Quizplus · Accepted Answer

Despite the expansionary monetary policy, the rate of unemployment remained high in 2011, indicating that the economy had not fully recovered yet. Additionally, the monetary policy alone cannot completely fix all the problems in an economy, and fiscal policies are also necessary to address structural issues such as a large budget deficit. The inflation rate remained subdued during this period, debunking concerns about hyperinflation caused by the increase in the monetary base.

In Response to a Severe Recession, the Fed More Than