Question 62

Assume that the economy is currently in a liquidity trap and the public is convinced by the central bank that there will be more inflation in the future, then

(To have a full mark in this question, you NEED to explain your answer in detail. Using AE/PC model with graphs, please provide your solutiona)

None of the answers are correct

b)

the fiscal policy can effectively reduce the short-term interest rate

c)

the monetary policy can not have an impact on real aggregates.

d)

the monetary policy can have an impact on real aggregates.

e)

the fiscal policy can not have an impact on real aggregates.