Explain why the expansionary monetary policy becomes ineffective during a liquidity trap? Suppose the government takes an expansionary fiscal policy by increasing its expenditure on military equipment. Here, would an expansionary fiscal policy be more effective than expansionary monetary policy to escape a liquidity trap?

Answer rating: 100% (QA)

An expansionary monetary policy typically involves actions by the central bank to increase the money supply or decrease interest rates to stimulate ec... View the full answer