Monetary policy seems to be of little use during a depression because
A) even though money is made available, there is no way to ensure it will be spent.
B) increases in the money supply raise interest rates and choke off investment.
C) people do not save when incomes are low.
D) if more money is created, it goes to pay taxes.
E) increases in money lead to inflation.

Question

Quizplus · Accepted Answer

During a depression, even if monetary policy is used to make more money available, there is no guarantee that businesses or consumers will spend it. This is because the overall economic outlook is pessimistic, and both consumers and businesses are likely to save any extra money or use it to pay down debt rather than spend it, which does not help to stimulate the economy.

Monetary Policy Seems to Be of Little Use During a Depression