After the Great Recession when the recovery turned out to be very weak, economic policy in the U.S. had to turn forcefully toward fiscal policy because of the following reasons, except:
A) Monetary policy's cyclical asymmetry
B) The banking system fell into a liquidity trap
C) Interest rates had already been cut to very low levels
D) The time lags of monetary policy

Question

Quizplus · Accepted Answer

The other three choices all explain why fiscal policy had to be used instead of monetary policy. Monetary policy's cyclical asymmetry means that interest rate cuts may not be enough to stimulate economic growth during a recession. The banking system fell into a liquidity trap, which means that banks were holding onto excess reserves instead of lending them out, making monetary policy less effective. Interest rates had already been cut to very low levels, leaving little room for further cuts to stimulate growth. However, the time lags of monetary policy refer to the delay between implementing a policy change and its effect on the economy, which is not a reason why fiscal policy had to be used instead.

After the Great Recession When the Recovery Turned Out to Be