A contractionary monetary policy is least effective in influencing output when:

CA Foundation · Business Economics · MTP · May 2026
A contractionary monetary policy is least effective in influencing output when:
(A) A. Interest elasticity of investment is high
(B) B. The economy operates under a liquidity trap
(C) C. Exchange rates are flexible
(D) D. Asset prices respond strongly to interest rates

Suggested Answer and Working Notes:

Correct Answer: Option (B)

B. The economy operates under a liquidity trap

Topics: Money Market

Open in Interactive Practice Hub · Full Practice Hub · Chapter Weightage · More in this subject

Related Questions in this Topic