Suppose the money market is in the liquidity trap and that the economy is experiencing a recessionary gap.A Keynesian economist would most likely advocate
A) expansionary monetary policy.
B) contractionary monetary policy.
C) expansionary fiscal policy.
D) contractionary fiscal policy.

Question

Quizplus · Accepted Answer

In a liquidity trap, interest rates are already very low, so expansionary monetary policy (such as lowering the interest rate further) may not have any effect on stimulating the economy. Therefore, a Keynesian economist would instead advocate for expansionary fiscal policy (such as increased government spending or tax cuts) to increase aggregate demand and close the recessionary gap.

Suppose the Money Market Is in the Liquidity Trap and That