Which of the following is false?
A)In a liquidity trap, expansionary monetary policy will tend to increase the excess reserves in the banking system.
B)If there are currently excess reserves in the banking system, in a liquidity trap, expansionary monetary policy will lead those excess reserves to be lent out by the banking system
C)If there are no changes in the level of excess reserves held in the banking system as a result, both expansionary and contractionary monetary policy can successfully shift the money supply curve
D)None of the above; all of the above are true.

Question

Which of the following is false?​
A)​In a liquidity trap, expansionary monetary policy will tend to increase the excess reserves in the banking system.
B)​If there are currently excess reserves in the banking system, in a liquidity trap, expansionary monetary policy will lead those excess reserves to be lent out by the banking system
C)​If there are no changes in the level of excess reserves held in the banking system as a result, both expansionary and contractionary monetary policy can successfully shift the money supply curve
D)​None of the above; all of the above are true.

Quizplus · Accepted Answer

In a liquidity trap, even if there are excess reserves, banks may not lend out additional reserves due to a lack of borrower demand or due to pessimism about the future economic outlook. Expansionary monetary policy in such a scenario does not guarantee that banks will lend out their excess reserves.

Which of the Following Is False?​

Which of the Following Is False?