If the Bank of Canada is facing ________,the bank lending channel provides one explanation for why monetary policy may still be effective even when short-term nominal interest rates equal 0%.
A) an upward-shifting Phillips curve
B) stagflation
C) the zero bound constraint
D) an economy where real GDP has surpassed potential GDP

Question

Quizplus · Accepted Answer

The zero bound constraint refers to the situation where short-term nominal interest rates are close to, or at, 0%. In such circumstances, the central bank cannot use conventional monetary policy tools, such as lowering interest rates, to stimulate the economy. The bank lending channel, which refers to the transmission of monetary policy through changes in banks' lending behavior, provides one explanation for why monetary policy may still be effective in such situations. This channel suggests that even when nominal interest rates are at 0%, changes in the central bank's policy rate can still influence banks' lending rates, which in turn affect borrowing and spending in the economy.

If the Bank of Canada Is Facing ________,The Bank Lending