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A more recent policy that is being tried out are negative interest rates this means that commercial banks have to pay the central bank to keep deposits and so the hope is that they will lend out the money instead for example the danish central bank has imposed a negative interest rate since 2012 and yesterday the ecb announced it had dropped its. Essay questions and answers for chapter 26 1 explain the traditional interest rate channel for expansionary monetary policy explain how a tight monetary policy affects the economy through this channel in the traditional channel, a monetary expansion reduces real interest rates, lowering the cost of capital and increasing investment. The impact of monetary policy on interest rates and expectations about fully referenced complete original answer to your essay essay uk, monetary policy.
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