If there is a liquidity trap in the New Keynesian model then
A)fiscal policy is irrelevant.
B)conventional monetary easing works well.
C)government spending is trapped.
D)the nominal interest rate is at its lower bound.
E)prices cease to be sticky.

Question

Quizplus · Accepted Answer

In a liquidity trap in the New Keynesian model, the nominal interest rate is already at its lower bound of zero, meaning that conventional monetary easing is no longer effective in stimulating the economy. Fiscal policy becomes the only effective tool in this situation.

If There Is a Liquidity Trap in the New Keynesian