When an economy is in a deflationary spiral, and nominal interest rates are close to zero, it may be necessary:
A) for the Fed to print money.
B) to raise taxes.
C) to cut unemployment insurance.
D) to lay off government workers.
E) to conduct contractionary monetary policy.

Question

Quizplus · Accepted Answer

When an economy is in a deflationary spiral and nominal interest rates are close to zero, it means that monetary policy is no longer effective in stimulating the economy. Therefore, the central bank may resort to printing money as a last resort to increase the money supply and stimulate spending. This process is referred to as quantitative easing.

When an Economy Is in a Deflationary Spiral, and Nominal