Keynes believed that monetary stimulus would be ineffective during a recession because of all of the following except
A)The liquidity trap.
B)Low expectations.
C)The reluctance of banks to lend.
D)The willingness of consumers to increase consumption when interest rates fall.

Question

Quizplus · Accepted Answer

Keynes believed in the effectiveness of fiscal policies during recessions, such as government spending to stimulate demand. However, he did not believe that monetary stimulus, such as lowering interest rates, would be effective in times of severe economic downturns due to the liquidity trap and low expectations of future growth. He did not mention the willingness of consumers to increase consumption when interest rates fall as a reason for the ineffectiveness of monetary stimulus.

Keynes Believed That Monetary Stimulus Would Be Ineffective During a Recession