When are monetary and fiscal policies most effective?
A) Both are more effective when they address inflation than unemployment.
B) Both are more effective when they address unemployment than inflation.
C) Fiscal is more effective in a liquidity trap, and monetary is more effective otherwise.
D) Monetary is more effective in a liquidity trap, and fiscal is more effective otherwise.

Question

Quizplus · Accepted Answer

Fiscal policy is more effective in a liquidity trap, where interest rates are near zero and monetary policy becomes ineffective because people hoard cash instead of spending it. Monetary policy is generally more effective in normal times for managing the economy's demand side.

When Are Monetary and Fiscal Policies Most Effective