Monetary Policy Prediction – liquidity trap: What does Keynesian monetary policy predict will happen when
the government (through the central bank) wants to fight against recession but interest rates are already
very close to zero.
Monetary Policy Prediction – politics get in the way: Suppose a national leader is up for reelection when the
economy is doing well (low unemployment and reasonable inflation) and she wants to “boost” the economy
through the use the central bank’s control over the money supply. Could this work and what are the consequences?
Sample Solution
