Answered: When nominal interest rates are zero,…

When nominal interest rates are zero, the central bank can still lower them by printing money and purchasing bonds from banks. This increases the supply of loanable funds and stimulates lending.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: Savings,investment And The Financial System

Section: Chapter Questions

Problem 9PA

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Question

4. When nominal interest rates are zero, the central bank can still lower them by printing money
and purchasing bonds from banks. This increases the supply of loanable funds and stimulates
lending.
5. A pro-savings policy by the US would likely reduce the US trade deficit.
6. When savings equals investment, reducing savings and increasing consumption is especially
effective in stimulating output.

Definition Definition Situation in which a country spends more on imports than it makes through exports. When a trade deficit exists, net exports will be negative. Trade Deficit = (Imports) - (Exports)

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