Homework SourseAccording to Keynes fiscal policy is more effective than mon
According to Keynes, fiscal policy is more effective than monetary policy because of
A. The neutrality of money
B. The inelasticity of investment vs the interest rate
C. The elasticity of investment vs the interest rate
D. None of the above
According to Keynes, fiscal policy is more effective than monetary policy because of
A. The neutrality of money
B. The inelasticity of investment vs the interest rate
C. The elasticity of investment vs the interest rate
D. None of the above
A. The neutrality of money
B. The inelasticity of investment vs the interest rate
C. The elasticity of investment vs the interest rate
D. None of the above
Solution
Both monetary and fiscal policies are needed to acheive economic growth and both the policies has its own pros and cons. According to Keynes, fiscal policy is more effective than monetary policy since the effectiveness of the monetary policies are subject to time lags. Again, an expansionary monetary policy may cause the interest rate to rise, but in case of a liquidity trap, the effectiveness of monetary policy is absent. Again, expansionary monetary policies may result in hyper inflation which is bad for an economy.
D. None of the above
