The economy is in a recessionary gap and there is evidence that the economy is in a liquidity trap.In this situation,a Keynesian is likely to advocate the use of __________ policy.

Question

Quizplus · Accepted Answer

In a recessionary gap with a liquidity trap, Keynesians would advocate for expansionary fiscal policy (such as increased government spending or tax cuts) because traditional expansionary monetary policy (like lowering interest rates) becomes ineffective when interest rates are already near zero and people prefer to hold onto cash rather than invest or spend it.

The Economy Is in a Recessionary Gap and There Is