In a liquidity trap
A) monetary policy is very effective in changing income and output.
B) fiscal policy is ineffective in changing income and output.
C) monetary policy is ineffective in changing income and output.
D) monetary policy is somewhat effective in changing income and output in the short run.

Question

Quizplus · Accepted Answer

In a liquidity trap, interest rates are already at or near zero and monetary policy tools become ineffective in stimulating the economy. Fiscal policy can be more effective in this situation as it involves government spending and taxation, which can directly stimulate demand in the economy.

In a Liquidity Trap