According to Keynesians,__________ monetary policy will not remove the economy from a(an)__________ gap if __________.

Question

Quizplus · Accepted Answer

According to Keynesians, expansionary monetary policy can help to close a recessionary gap by increasing aggregate demand. However, if the economy is in the liquidity trap, where interest rates are so low that further reductions will be ineffective, expansionary monetary policy will not be able to stimulate investment and consumption enough to close the gap. Therefore, option B is the correct answer. Option A is incorrect because contractionary monetary policy would worsen a recessionary gap; option C is incorrect because expansionary monetary policy is specifically designed to close a recessionary gap, not an inflationary gap; option D is incorrect because contractionary monetary policy is recommended for closing an inflationary gap, not opening it for over a year.

According to Keynesians,__________ Monetary Policy Will Not Remove the Economy