PRC-3 · Chapter 19 · Question 1 of 17
The central bank observes that the economy is deeply stuck in a recession with severe unemployment. To stimulate aggregate demand and encourage borrowing by businesses, what specific monetary policy tool should the central bank deploy?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Substantially lower the benchmark interest rates
Explanation
Expansionary monetary policy involves lowering interest rates. Cheaper borrowing encourages firms to invest and consumers to spend, boosting aggregate demand to fight the recession.
More Monetary Policy MCQs
- Q3Which of the following is NOT a standard tool used by a country's Central Bank to conduct Monetary Policy?
- Q4When a central bank decides to aggressively 'buy' millions in government securities from commercial banks through Open Market Operations…
- Q5The central bank increases the 'cash reserve ratio' (the percentage of deposits banks must keep in the vault and cannot lend out). What is…
- Q6The nation is suffering from soaring inflation. To cool down the economy, the Central Bank decides to use a contractionary monetary…
- Q7The Central Bank significantly lowers its benchmark discount rate (the rate it charges commercial banks to borrow money). What is the…