Chapter 36, Problem 2MCQ

To determine

The reason for discretionary monetary policy was made more difficult during the great recession

Answer to Problem 2MCQ

From the available options, the correct option is interest rates were near zero

Explanation of Solution

Discretionary fiscal policy did not need high deficit spending that cause high national debt and Federal Reserve took actions to control unemployment rate that time as it was expected that economic downturn will take long to set. Governments that borrow must compete with everyone else in the economy for the limited amount of accessible savings.

And, during great recession, the discretionary monetary policy was not useful because it included actions of Federal Reserve through which interest rates were maintained very low to reduce unemployment but it was not effective to reduce economic recession. It means low interest rates which were near zero responsible for ineffectiveness of discretionary monetary policy during Great Recession. Therefore, the correct option is a (interest rates were near zero) and all other options are incorrect.

Economics Concept Introduction

Introduction: The monetary policy is used to control the supply of money in an economy to achieve the targeted economic growth. The government of a nation implements fiscal policy through spending and taxes to affect the economic climate of the country.