Which of the following statements is false?
A) Keynesians would not advocate an expansionary monetary policy to eliminate a recessionary gap if they believed that investment demand was interest-insensitive.
B) Keynesians would not advocate an expansionary monetary policy to eliminate a recessionary gap if they believed the money market was in the liquidity trap.
C) Keynesians would advocate an expansionary monetary policy to eliminate a recessionary gap if they believed investment spending was insensitive to changes in the interest rate.
D) Keynesians believe that money wages are inflexible in the downward direction.

Question

Quizplus · Accepted Answer

Keynesians believe that increasing aggregate demand through monetary policy can help eliminate a recessionary gap, but if investment spending is insensitive to changes in the interest rate, then an expansionary monetary policy may not be effective. Option A and B are true statements, and Option D is also true as Keynesians believe in sticky wages, meaning that money wages are slow to adjust downwards in response to changes in labor market conditions.

Which of the Following Statements Is False