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.
