?

Macroeconomics

Free Version

Upgrade subject to access all content

Easy

Keynesian Liquidity Trap

MACRO-XK4MKH

Which of the following best describes the liquidity trap envisioned by Keynes?

A

The LM curve is relatively flat; expansionary monetary policy will have no effect on real GDP.

B

The LM curve is relatively steep; expansionary monetary policy will significantly lower the interest rate.

C

Both the IS and LM curves are horizontal with an indeterminate level of GDP.

D

With a flat LM curve, expansionary fiscal policy can have no effect on real GDP.