Which of these is a Keynesian view on why monetary policy could be ineffective?
A) If interest rates are extremely low, there is little incentive to save. In this case, expansionary monetary policy has little impact on investment spending.
B) Markets adjust so quickly to new equilibria that there is no change in output or price level.
C) While monetary policy is more effective than fiscal policy, policymakers are unable to control whether its impact is greater on prices or on output.
D) The crowding-out phenomena reduces the impact of monetary policy.

Question

Quizplus · Accepted Answer

Keynesian economics suggests that in a situation where interest rates are already very low (a liquidity trap), further reductions in interest rates will have little to no effect on increasing investment or consumption. This is because the incentive to save decreases significantly, and people or businesses are unlikely to borrow and spend more even if the interest rates are slightly lower.

Which of These Is a Keynesian View on Why Monetary