Monetary policymakers could keep equity and property price bubbles from developing by:

Question

Quizplus · Accepted Answer

When policymakers suspect a bubble, they should raise their interest rate target. Higher interest rates can make borrowing more expensive and reduce the amount of money available for investment, which can help cool off the speculation that drives bubbles in equity and property prices. Lowering interest rates might encourage even more borrowing and investment, fueling the bubble further. Expanding the money supply or purchasing U.S. treasury securities might have some impact on prices but is unlikely to address the underlying speculative behavior that drives bubbles.

Monetary Policymakers Could Keep Equity and Property Price Bubbles from Developing