The zero lower bound is
A) the constraint that consumption cannot fall below zero.
B) the constraint that the nominal interest rate cannot fall below zero.
C) the lower bound on money supply growth.
D) conventional monetary policy.
E) illegal.

Question

Quizplus · Accepted Answer

The zero lower bound refers to the lower bound of the nominal interest rate, i.e., the constraint that it cannot fall below zero. This can constrain conventional monetary policy, as central banks cannot reduce interest rates further to stimulate the economy when it is already at zero. Therefore, unconventional monetary policy measures such as quantitative easing may be used. The other choices are not accurate descriptions of the zero lower bound.

The Zero Lower Bound Is