According to traditional Keynesians, monetary policy is ineffective in affecting the economy during a recession because

Question

Quizplus · Accepted Answer

Traditional Keynesians argue that during a recession, the economy is likely to be in a liquidity trap, where people prefer to hold cash rather than invest in bonds or other assets, regardless of how low interest rates go. Therefore, an increase in the money supply will have little impact on interest rates, as the demand for liquidity is highly elastic. This makes monetary policy ineffective in stimulating the economy during such times.

According to Traditional Keynesians, Monetary Policy Is Ineffective in Affecting