The Keynesian transmission mechanism could be blocked by either interest-insensitive investment or by the liquidity trap.

Question

Quizplus · Accepted Answer

Interest-insensitive investment means that changes in interest rates will not significantly affect the amount of investment spending, which would block the Keynesian transmission mechanism. The liquidity trap occurs when interest rates are so low that monetary policy becomes ineffective in stimulating economic activity, also blocking the Keynesian transmission mechanism.

The Keynesian Transmission Mechanism Could Be Blocked by Either Interest-Insensitive