The Fed's inability to stimulate the economy by reducing interest rates is known as the
A) zero lower bound problem.
B) zero upper bound problem.
C) negative interest rate problem.
D) quantitative easing problem.

Question

Quizplus · Accepted Answer

The zero lower bound problem refers to the fact that when interest rates are already very low (near zero), the Fed is unable to further reduce them to stimulate the economy. This limits the effectiveness of traditional monetary policy tools and requires the Fed to explore alternative measures, such as quantitative easing or forward guidance. The other choices are not accurate descriptions of this specific problem.

The Fed's Inability to Stimulate the Economy by Reducing Interest