"The price level may fall but it will not necessarily lower the interest rate, not if we are in a liquidity trap." This is a statement a __________ economist might make as an explanation of why the economy __________ pull out of a recession.

Question

Quizplus · Accepted Answer

This statement is more likely to be made by a Keynesian economist, who believes that in a liquidity trap, monetary policy may not be effective at stimulating the economy. The statement suggests that even if the price level falls, it may not be enough to lower interest rates and boost investment and consumption, which could mean that the economy may not be able to pull out of a recession.

"The Price Level May Fall but It Will Not Necessarily