Monetary policy has this problem of "pushing on a string". You can pull on a string to pull something

closer to you but if you push on the string, nothing happens, the thing doesn't go farther from you. It

means the policy is effective one way but not the other.

Monetary policy is more effective is slowing down an economy that is growing too fast than to boosting

an economy that is too slow. If an economy is growing too quickly, the central banks can raise interest

rates and make it too expensive for people to borrow and they stop spending. But if the economy is

growing too slowly, the central banks can lower the interest rates and make it cheaper for people to

borrow and buy but it CAN'T FORCE PEOPLE to buy. (Imagine your favorite car can be bought now with

0% interest for 2 years, does that mean you'll buy it?)

In that case, lowering the interest rate from 2% to 1% or 0% or even -1% might not make a difference to

the economy if people still don't want to buy (and instead hoard the cash).

When central banks lower interest rates, they are said to be pursuing "easing monetary policy". When

central banks are raising rates, they are "tightening monetary policy".

1. what are negative interest rates?

2. What might be a problem if the US also pursues a negative interest rate policy?

3. Why can other countries do it but we can't?

4. Who does the stock market benefit mostly?

5. How might it make sense for a trader to buy a bond with negative interest rate. (hint: how does

the investor make a capital gain?)

6. How did the low interest rate on European bonds affect demand for US bonds? (think of the

determinants)

7. In order for people in Europe to buy these US bonds, they need to buy USD dollars. In order to

buy USD they had to sell Euro. How do you think the USD has fared relative the Euro for 2019?

(at least in theory how should it work? Appreciate? Depreciate?)

8. What is pushing on a string?

9. What does negative interest rates give the government an incentive to do?