Liquidity provision and asset purchase may not be enough to stimulate the economy unless the these policy actions are able to
A)lower the real interest rate for investments.
B)lower the short-term real interest rate.
C)raise the policy rate above zero.
D)lower the policy rate.

Question

Quizplus · Accepted Answer

Lowering the real interest rate for investments can stimulate borrowing and investment in the economy, leading to economic growth. Simply lowering short-term interest rates or implementing asset purchases may not be enough to spur borrowing and investment if the real interest rate remains high. Raising the policy rate above zero or lowering the policy rate may have mixed effects on the economy and may not necessarily lead to increased borrowing and investment.

Liquidity Provision and Asset Purchase May Not Be Enough to Stimulate