6) According to the textbook, the effective lower interest rate bound is (2pts)

Question

6) According to the textbook, the effective lower interest rate bound is (2pts) no longer a relevant economic concept due to the availability of non--traditional policy tool O higher than the zero lower bound due to inflationary expectations. lower than the zero lower bound due to the transactions costs of transporting, storing, and O insuring cash. equal to the zero lower bound. 7) Which of the following is a likely effect of increases in a borrower's net (2pts) worth? O It reduces the problem of moral hazard It lowers the information costs of lending It reduces the problem of adverse selection All of the above None of the above

Explanation / Answer

6. The effective lower bound interest rate is no longer relevant due to the availability of non-traditional policy tools. The non-traditional monetary policy tools work well even if the interest rate in very low.

7. Adverse selction.

If the value of the assets of the borrower's have increased, it means it will easier for him to repay the loan. so, it reduces the problem of adverse selection.

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