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Which of the following statements is most accurate about the Fed’s zero interest rate policy (ZIRP)?...

Which of the following statements is most accurate about the Fed’s zero interest rate policy (ZIRP)?

Multiple Choice

  • The Fed has abandoned the ZIRP, recognizing the need to reduce nominal interest rates to below zero.

  • As of 2016, the ZIRP is being pursued by the Fed.

  • It ended in late 2015, with the Fed increasing the IOER and engaging in reverse repo transactions.

  • In an effort to end the ZIRP, the Fed prohibited nonbank lending to banks.

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Answer #1

Option 3 is correct.

Zero interest rate policy was used as an unconventional tool by the Fed from 2008 to 2015. It was used to stimulate the borrowing since the economy was suffering from recession. By the end of 2015, FOMC started to normalize the monetary policy by raising the federal funds rate to their long-run norm of nearly 4%.

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