Movements of real interest rates indicate that,contrary to the early Keynesians' beliefs,________ policy was ________ during the Great Depression.
A)fiscal; tight
B)fiscal; easy
C)monetary; tight
D)monetary; easy

Question

Quizplus · Accepted Answer

Movements of real interest rates show the stance of monetary policy. A tight monetary policy would result in high real interest rates, while an easy monetary policy would result in low real interest rates. Therefore, the movements of real interest rates during the Great Depression indicate that monetary policy was tight, not easy. This rules out choices B and D. The early Keynesians emphasized the importance of fiscal policy in stimulating aggregate demand, so choice A can also be ruled out.

Movements of Real Interest Rates Indicate That,contrary to the Early