Question

"If the fed funds rate is at zero, the Fed can no longer implement effective accommodative policy." Is this statement true, false, or uncertain? Explain.

Short answer

Because of the cheap cost of borrowing, long-term bond yields are also cheaper, allowing tend to shop more. Therefore, even when the cost of borrowing is kept at nil, the federal govt can undertake efficient supportive policies.

Step-by-step solution

Concept Introduction.

The government money rates are the interest rates during which credit unions transfer reserve balances towards other organizations.

Explanation of solution.

The classic monetary policies demonstrate how the financial system can be successful even when the fed funds rate is at nil for a long period. When borrowing costs are kept artificially low for an extended time, borrowing costs stay low. Because of the cheap cost of borrowing, long-term bond yields are also cheaper, allowing tend to shop more.

Therefore, even when the cost of borrowing is kept at nil, the federal govt can undertake efficient supportive policies.