Monetary policy is thought to be
A)equally effective in moving the economy out of a depression as in controlling demand-pull inflation.
B)more effective in moving the economy out of a depression than in controlling demand-pull inflation.
C)more effective in controlling demand-pull inflation than in moving the economy out of a recession.
D)only effective in moving the economy out of a depression.

Question

Quizplus · Accepted Answer

Monetary policy is generally considered more effective in controlling demand-pull inflation because it can quickly influence interest rates and borrowing costs, thereby cooling down an overheated economy. However, during a recession or depression, monetary policy may be less effective due to liquidity traps or low consumer confidence, which can limit the impact of lower interest rates.

Monetary Policy Is Thought to Be