Question

under what conditions is monetary policy most effective? a liquidity trap

a steep LM and relatively flat IS

a steep IS and relatively flat LM

steep IS and LM

President Franklin D. Roosevelt enacted the New Deal in 1933. What was this policy?

		aggressive fiscal policy designed to provide relief, reform and recovery from the Great Depression
		An act to preserve the laissez-faire approach to government's role in markets.
		a policy designed to reduce competition from foreign exporters
		an offer to purchase the island of Cuba

Which great economic scholar wrote the book "the General Theory of Unemployment Interest and Money"?

		John M. Keynes
		Adam Smith
		Karl Marx
		John Grisham

Answer 1

1. b. A steep LM and relatively flat IS.

The relative effectiveness of monetary policy depends on the shape of the LM curve and the IS curve. Monetary policy is more effective if the LM curve is steeper. A steeper LM curve means that the demand for money is less interest elastic. The less interest elastic is the demand for money, the larger is the fall in interest rate when the money supply is increased. This is because when the demand for money is less elastic to a change in interest rate, an increase in the money supply is more powerful in the bring­ing about a large fall in interest rate. A large fall in the interest rate leads to a higher increase in investment and in na­tional income.

2. a. Aggressive fiscal policy designed to provide relief, reform and recovery from the Great Depression.

The New Deal was a series of programs, public work projects, financial reforms, and regulations enacted by President Franklin D. Roosevelt in the United States between 1933 and 1939. It responded to needs for relief, reform, and recovery from the Great Depression.

3. ​​​​​​​a. John M. Keynes