Monetary policy is often ineffective in a banking crisis because businesses and consumers:
A)respond to low interest rates by borrowing and spending so much that inflation results.
B)borrow large amounts because interest rates are so low, but they are unwilling to spend the money that they have borrowed.
C)aren't willing to borrow and spend even though interest rates are very low.
D)aren't willing to borrow and spend because interest rates are so high.

Question

Quizplus · Accepted Answer

In a banking crisis, businesses and consumers may be hesitant to borrow and spend even if interest rates are low. This is because they may be more focused on reducing existing debt and saving for financial stability rather than taking on more debt. As a result, increasing the money supply through monetary policy may not be effective in stimulating economic activity.

Monetary Policy Is Often Ineffective in a Banking Crisis Because