11. The European Central Bank (ECB) manages monetary policy for the eurozone. In 2019, the ECB’s policy rate

(the ECB’s version of the federal funds rate) was already at 0 percent, before the start of the 2020 recession.

a. Using the concept of the zero lower bound, explain how low interest rates (before a recession starts)

could constrain countercyclical monetary policy.

b. Though fiscal policies are controlled by individual governments in the eurozone, the European Union’s Stability and Growth Pact places strict limits on country-

level deficit spending. Explain how the confluence of the zero lower bound and restrictions on the fiscal deficit might be problematic for countercyclical macroeconomic policy.