Which of the following is NOT consistent with the Keynesian view of policy and a liquidity trap?
A) Monetary stimulus is not effective when interest rates are near zero.
B) Liquidity traps require a policy solution that is opposite to the one that would be used in other situations.
C) Monetary policy affects aggregate demand through its impact on interest rates.
D) Fiscal policy is more effective than monetary policy in addressing a liquidity trap.

Question

Quizplus · Accepted Answer

Keynesian economics suggests that in a liquidity trap, where nominal interest rates are at or near zero, traditional monetary policy becomes ineffective because people hoard cash instead of spending or investing it. The Keynesian view does not suggest that the policy solution should be opposite to normal situations but rather emphasizes the use of fiscal policy (government spending and taxation) to stimulate demand directly. Choices A, C, and D are consistent with Keynesian views on liquidity traps and policy effectiveness, making B the incorrect statement as it misrepresents the Keynesian approach to addressing a liquidity trap.

Which of the Following Is NOT Consistent with the Keynesian