NO.PZ2023071902000059
问题如下：
Question
Under which of the following circumstances does monetary policy have the most significant impact?
选项：
A.
When the demand for money exhibits infinitely elastic.
B.When the central bank pursues an exchange rate targeting approach.
C.
When the risk of inflation outweighs the risk of deflation.
解释：
Solution
- Incorrect because a situation of perfect elasticity in the demand for money can result in a liquidity trap. In highly extreme scenarios, the demand for money becomes infinitely elastic, causing additional injections of money into the economy to have little effect on interest rates or real economic activity. This phenomenon, known as a liquidity trap, renders monetary policy largely ineffective.
- Incorrect because adopting an exchange rate targeting approach by the central bank leads to adjustments in domestic interest rates and money supply to achieve the targeted exchange rate, potentially increasing volatility in the domestic economy.
- Correct because deflation presents greater challenges to the central bank compared to inflation. Deflation involves a persistent and widespread decline in the general price index, making it harder for conventional monetary policy to address effectively. The difficulty arises from the limitation of cutting nominal interest rates significantly below zero to stimulate the economy. These conditions can lead to the emergence of a liquidity trap, further hindering the effectiveness of monetary policy.
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C项还是没理解，感觉答案说得不清楚。请老师再详细说一下C项想表达什么以及正确的原因。
