Which of the following is not a reason that a stimulative monetary policy may be ineffective?
A) The effects of a stimulative policy may be disrupted by expectations of inflation.
B) Retirees who rely on interest income may restrict their spending
C) Lending institutions may increase their standards for borrowers, so some potential borrowers may not qualify for loans.
D) Higher interest rates encourage individuals to increase their savings.

Question

Quizplus · Accepted Answer

Higher interest rates actually discourage spending and encourage saving, so this statement contradicts the effectiveness of a stimulative monetary policy. A, B, and C are all valid reasons that a stimulative policy may be ineffective, as inflation expectations, reduced spending by retirees on fixed incomes, and stricter lending standards can all limit the impact of a monetary stimulus.

Which of the Following Is Not a Reason That a Stimulative