During a liquidity trap:
A) monetary and fiscal policies are equally effective.
B) changes in taxes do not impact aggregate demand.
C) changes in government spending do not impact aggregate demand.
D) monetary policy is less effective.

Question

Quizplus · Accepted Answer

During a liquidity trap, interest rates are so low that monetary policy (e.g., changing the money supply) becomes ineffective at stimulating the economy, making fiscal policy relatively more effective.

During a Liquidity Trap