In the context of monetary policy, the 'Zero Lower Bound' problem refers to:
A. The inability of real interest rates to be positive
B. The minimum reserve requirement
C. The inability of nominal interest rates to fall significantly below zero
D. The floor on the fiscal deficit
Answer: Option C
Solution (By JKSSB Mock Tests)
The zero lower bound refers to the constraint that nominal interest rates cannot be reduced much below zero, limiting the effectiveness of conventional monetary policy in deep recessions.
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