Case Study

Evaluating Unconventional Monetary Policy

A country is facing a prolonged economic downturn with high unemployment and inflation persistently below the central bank's target. The central bank has already reduced its primary short-term policy interest rate to 0%. In response, the bank announces a new program to purchase large quantities of 10-year government bonds on the open market. Evaluate this policy decision. In your evaluation, explain why the central bank is targeting long-term bonds and discuss one significant potential limitation of this strategy.

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Updated 2025-10-06

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