Monetary policy is thought to be:
A)equally effective in moving the economy out of a recession as in controlling inflation
B)more effective in moving the economy out of a recession than in controlling inflation
C)more effective in controlling inflation than in moving the economy out of a recession
D)only effective in moving the economy out of a recession
E)only effective in controlling inflation

Question

Quizplus · Accepted Answer

Monetary policy is believed to be more effective in controlling inflation than in stimulating economic growth and reducing the effects of a recession. This is because reducing interest rates can encourage borrowing and spending, but if demand remains weak, it may not lead to sufficient economic growth. On the other hand, raising interest rates can reduce inflation by restraining spending and borrowing. As such, central banks typically prioritize price stability over full employment when it comes to policy targets.

Monetary Policy Is Thought to Be