Question

All major central banks undertook monetary expansion in the present crisis, driving the interest rate close to 0. If expectations are rational, some economists asserts that money is neutral even in the short run, calling it the superneutrality of money. Discuss whether it is true

Answer 1

All major central banks undertook monetary expansion in the present crisis and drove the interest-rate close to 0.
This statement in the present pandemic situation is absolutely true because as the investment rate is very slow all the investors are not able to give proper return to the banks so the major portion of the earning of the banks is decreasing and in this situation, banks are not able to give interest-rate at an appropriate level that’s why all the major central banks of the world decided not to give extra interest on the deposit because the investment is very low.
If expectations are rational some economists say that money is neutral even in the short run, so somehow this situation is absolutely correct and prevailing in the economy.
The super neutrality of money is true as the money factor plays an important role in the investment part and in the saving part of the economy.
The value of money is important in the decision of productive efficiency and the rise of the investment project.
The neutrality of money is not always possible in the economy because this is not a situation that is existing permanently in the economy; it can happen just to control the present situation and to reduce the deficit of the government.