The economy is in a recessionary gap and there is complete crowding out.Furthermore,there is no evidence that the economy is in a liquidity trap or that investment is interest-insensitive.This makes the case for the use of __________ policy stronger than it might be otherwise.
A) contractionary monetary
B) contractionary fiscal
C) expansionary fiscal
D) expansionary monetary

Question

Quizplus · Accepted Answer

In a recessionary gap with complete crowding out and no liquidity trap or interest-insensitive investment, expansionary monetary policy is more effective. It can lower interest rates to stimulate investment and consumption without being offset by crowding out, which is a limitation of fiscal policy in this scenario.

The Economy Is in a Recessionary Gap and There Is