Keynes believed that, without government intervention, the liquidity trap could prevent economies from recovering from a recession.

Question

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Keynes argued that in a liquidity trap, where interest rates are very low and savings are high, traditional monetary policy would become ineffective and government intervention through fiscal policy, such as increased government spending, would be necessary to stimulate demand and revive the economy.

Keynes Believed That, Without Government Intervention, the Liquidity Trap Could