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Question & Answer
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It renders expansionary monetary policy largely ineffective in stimulating job creation.
It leads to an immediate increase in interest rates, boosting employment.
It allows for greater flexibility in monetary policy, enhancing job growth.
It encourages businesses to invest more, leading to a decrease in unemployment.
Understanding the Answer
Let's break down why this is correct
When interest rates are already very low and people keep saving instead of spending, cutting rates further does not change much. Other options are incorrect because The idea that cutting rates will immediately raise interest rates is wrong; People think a liquidity trap gives policymakers more leeway.
Key Concepts
Expansionary Monetary Policy Effects
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Deep Dive: Expansionary Monetary Policy Effects
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Definition
Expansionary monetary policy involves the central bank reducing interest rates to stimulate aggregate demand, leading to increased output and decreased unemployment. This policy aims to address cyclical unemployment and boost real income in the short run.
Topic Definition
Expansionary monetary policy involves the central bank reducing interest rates to stimulate aggregate demand, leading to increased output and decreased unemployment. This policy aims to address cyclical unemployment and boost real income in the short run.
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