Which of the following is not an appropriate policy for a central bank to follow if the economy is plagued with deflation?

Question

Quizplus · Accepted Answer

Increasing the target interest rate on overnight loans would only exacerbate the deflationary pressures on the economy. The appropriate policy in this scenario would be to use expansionary monetary policy to drive down interest rates and stimulate economic activity. The central bank should also consistently pursue policy to promote its credibility and explicitly and credibly target inflation. Increasing the ratio of reserves commercial banks are required to hold is also a possible policy option.

Which of the Following Is Not an Appropriate Policy for a Central