Article Summary With Global Borrowing Costs So Low, Economic Analysts Are Warning

Article Summary
With global borrowing costs so low, economic analysts are warning that central banks need to be prepared to set negative interest rates during the next economic downturn. Several central banks in Europe set negative interest rates in 2014, as did the Japanese central bank in 2016, in an attempt to spur lending. The global market value of negative-yielding bonds rose to $8.6 trillion in mid-2017 due to low inflation and increased perceptions of geopolitical risk. The current U.S. economic expansion is the third longest since the 19th century, and credit markets are showing signs of reaching a cyclical peak. According to Harvard professor Kenneth Rogoff, low interest rates this late in an economic cycle are unprecedented, noting that the Fed cut interest rates by an average of 5.5 percentage points in the nine recessions since the 1950s, and this would be impossible today without negative interest rates.

-Refer to the Article Summary. Implementing a negative interest rate policy, as is discussed in the article summary, would be designed to ________ the price level and ________ real GDP.

A) decrease; decrease
B) decrease; increase
C) increase; decrease
D) increase; increase

Correct Answer:

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