In a liquidity trap, expansionary monetary policy has __________ effect on output, and expansionary fiscal policy has __________ effect on output.

Question

Quizplus · Accepted Answer

In a liquidity trap, interest rates are so low that monetary policy becomes ineffective at stimulating the economy, meaning it has no effect on output. However, expansionary fiscal policy, such as increased government spending or tax cuts, can still stimulate demand and thus have a strong effect on output.

In a Liquidity Trap, Expansionary Monetary Policy Has __________ Effect