Because Keynes's theory recognized the problem of interest rates being at the zero bound (the liquidity trap), it:
A) perceived the economy as being mostly self-adjusting.
B) favored the use of monetary policy over fiscal policy.
C) considered technological progress the answer to any economic slump.
D) favored the use of fiscal policy over monetary policy.

Question

Quizplus · Accepted Answer

Keynes's theory favored the use of fiscal policy over monetary policy because during a liquidity trap, monetary policy (such as manipulating interest rates) becomes ineffective since interest rates are already at the zero bound. Fiscal policy, on the other hand, can have a direct impact on increasing aggregate demand through government spending and tax cuts.

Because Keynes's Theory Recognized the Problem of Interest Rates Being