Keynes argued that monetary policy would be impotent during the Great Depression because
A)both the IS and the LM curve were vertical.
B)IS curve was continuously shifting,while the LM curve was stable.
C)IS curve was vertical and stuck at a low level of Y.
D)none of the above

Question

Quizplus · Accepted Answer

Keynes argued that during the Great Depression, the IS curve was stuck at a low level of output (Y) due to a decrease in investment and consumption spending. This situation created a liquidity trap where decreasing interest rates would have little effect on increasing aggregate demand as the LM curve was relatively flat. Therefore, Keynes believed that monetary policy would be ineffective in stimulating the economy and that fiscal policy, such as government spending, would be necessary to address the problem of low aggregate demand. Option A is incorrect as both IS and LM curves were not vertical. Option B is incorrect as the IS curve itself was not continuously shifting, but it remained stuck at a low level. Option D is incorrect as C is the right answer.

Keynes Argued That Monetary Policy Would Be Impotent During the Great