Shift in Monetary Policy Focus
When a central bank has lowered its primary short-term policy rate to zero but the economy still requires significant stimulus, it may begin purchasing large quantities of long-term financial assets. Explain why, under these specific circumstances, the central bank's effective policy instrument shifts from the short-term rate to long-term interest rates.
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Economics
Economy
Introduction to Macroeconomics Course
Ch.5 Macroeconomic policy: Inflation and unemployment - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
CORE Econ
Social Science
Empirical Science
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Analysis in Bloom's Taxonomy
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An economy is experiencing a severe recession, and its central bank has already lowered the primary short-term policy interest rate to zero. To provide further stimulus, the bank begins purchasing large quantities of long-term government bonds from the open market. What is the most direct intended economic transmission mechanism of this action?
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