Question

During the recent​ recession, several European countries proposed austerity measures that would help shrink the size of the national deficits within the countries. These proposed measures included tax hikes and cuts in government spending. When this happened in the United States in the​ 1990s, there was an accompanying decrease in the policy rate to help avoid slowing the economy down too much. Why was this same policy decision more difficult in​ Europe? A. In response to the​ recession, the policy rate in Europe had already been lowered close to the zero lower​ bound, so additional decreases were not viable. B. Europeans protested against the austerity​ measures, which angered the​ government; it responded by intentionally not taking steps to limit the impact of these measures. C. There is no mechanism in Europe to change the policy rate like there is in the United States. D. European governments had never implemented these types of austerity policies before so they were not aware of the need for monetary policy to limit the impacts.

Answer 1

Answer: Option A

Explanation:

In Europe during the recession the policy rate of the banks like LIBOR and EURIBOR etc were already very close to zero so unlike United states of america they were not able to decrease the rate further. The monetary policy of Europian banks and authorities saw a major failure in that period.