Answer to Question #227451 in Macroeconomics for TYR

Question

When the economy is in a liquidity trap or deflation spiral … 1. expansionary monetary policy becomes ineffective to stimulate the level of output and income. 2. expansionary monetary policy becomes effective to stimulate the level of output and income. 3. contractionary monetary policy becomes ineffective to stimulate the level of output and income. 4. contractionary monetary policy becomes effective to stimulate the level of output and income.

Answer 1

1. expansionary monetary policy becomes ineffective to stimulate the level of output and income.