In: Economics
20. Which of the following captures the idea that Keynesian
policy recommendation to "lean against the wind"?
Use active fiscal and/or monetary policy to combat short run
economic shocks
laissez-faire
to push against public pressure for expansionary yet unsustainable
growth
to be stubborn in the face of adversity
22. Which of the following is true during a liquidity
trap?
monetary policy becomes highly effective
both monetary and fiscal policy become ineffective
monetary policy becomes ineffective, but fiscal policy remains
effective
Both fiscal and monetary policy have an increased effectiveness
23. investment demand is negatively related to and positively
related to .
business expectations, the interest rate
the interest rate, bullish expectations
the interest rate, bearish expectations
income, expectations
20. to be stubborn in the face of adversity
As per lean against the wind concept No policy measures are employed to combat short run economic shocks
21. monetary policy becomes ineffective, but fiscal policy remains effective
Mmonetary policy becomes ineffective because nominal interest rate is almost zero. when this happens the opportunity cost of holding money becomes nil even when the central bank enhances money supply to boost the economy. As a result money will be accumulated instead of being invested. Also the possibility of deflation can put the economy into the vicious cycle of output stagnation.
Expansionary fiscal policy is the Keynesian answer to liquidity trap as it can offset the increased private sector saving and inject money into the circular flow
22. the interest rate, bullish expectations
High interest rate would mean higher cost of borrowing and hence investment will be lesser.
If market expectations are bullish investments will be more in hope of gaining higher returns in the future