Question

An expansionary monetary policy may be less effective than a restrictive monetary policy because

Multiple Choice
the Federal Reserve Banks are always willing to make loans to banks that are short of reserves.
fiscal policy always works at cross purposes with an expansionary monetary policy.
changes in exchange rates complicate an expansionary monetary policy more than they do a restrictive monetary policy.
households and businesses may not wish to borrow even at very low interest rates.

Answer 1

The most appropriate answer to the question is:

**households and businesses may not wish to borrow even at very low interest rates.**

This option highlights the limitation of expansionary monetary policy: even when interest rates are lowered significantly, if households and businesses lack confidence in the economy or face uncertainties, they may choose not to borrow, thereby reducing the effectiveness of the policy.