Keynesians argued that monetary policy would NOT be effective if:
A) there was a liquidity trap.
B) the Fed was independent of political pressure.
C) other countries did not follow monetary policy similar to that of the United States.
D) no one bought bonds when the Fed conducted open-market operations.

Question

Quizplus · Accepted Answer

Keynesians believed that when interest rates are very low, people would rather hold onto their cash than invest it or spend it, leading to a liquidity trap. In this scenario, monetary policy - cutting interest rates - would be ineffective as it would not encourage businesses and consumers to borrow and spend.

Keynesians Argued That Monetary Policy Would NOT Be Effective If