Question Details

Why might monetary policy not be able to alleviate the 2008 recession 


1. “While U.S. Treasuries are at record low yields, corporate bonds are at record highs. Corporations are paying an average interest rate of 10.8 per cent on debt, compared with 2.6 per cent on 10-year U.S. Treasuries.” This dramatic difference could be caused by 
a)	a high inflation rate 
b)	a high tax rate 
c)	fears of corporate bankruptcy 
d)	a low level of government spending 

2. “The Fed is expected to lower the Federal funds rate tomorrow, but as far as the economy goes the decision is basically irrelevant. The actual, or effective, Fed funds rate is already close to zero, 0.125 per cent; the Fed funds rate is currently at 1 per cent.” The difference between the Federal funds rate and the actual (or “effective”) Fed funds rate is 
a)	the difference between the real and nominal interest rates 
b)	the actual rate of inflation 
c)	the difference between the official rate and the rate that banks pay for overnight loans 
d)	the difference between the T-bill rate and the prime rate 

3. “The Fed is expected to lower the Federal funds rate tomorrow, but as far as the economy goes the decision is basically irrelevant. The actual, or effective, Fed funds rate is already close to zero, 0.125 per cent; the Fed funds rate is currently at 1 per cent.” 
This large difference could happen because 
a)	inflation is high 
b)	expected inflation is high 
c)	of unusually high money supply growth 
d)	of a large government deficit 

4. “The issue is whether monetary policy can do the trick or not, and it would appear to many that it can’t.” Why might monetary policy not be able to alleviate the 2008 recession ? Because during a recession 
a)	monetary policy is like pushing on a string 
b)	a lower interest rate does not increase spending 
c)	people are bent on saving, not spending 
d)	all of the above 


Economics Assignment Help, Economics Homework help, Economics Study Help, Economics Course Help