A central bank implements an expansionary monetary policy, consisting of low policy interest rates and quantitative easing, to stimulate aggregate demand and prevent a deflationary spiral. This policy is least likely to achieve its objective of increasing economic activity if, at the same time, the government:
runs a larger budget surplus by cutting public infrastructure investment.
runs a larger budget deficit by increasing transfer payments to low-income households.
reduces the rate of corporation tax to encourage private sector investment.
implements a scheme to guarantee commercial bank loans to small businesses.
