22. Keynesians claim that counter cyclical monetary policy is asymmetric in its

Question

22. Keynesians claim that counter cyclical monetary policy is asymmetric in its effectiveness. Which of the following arguments is used by Keynesians in support of such an argument? A. When an increase in G is financed through Treasury borrowing, interest rates may rise resulting in a decrease in private sector spending that could offset the expansionary impact of the increase in government spending. B. When an increase in G is financed through Treasury borrowing, interest rates may fall resulting in a decrease in private sector spending that could offset the expansionary impact of the increase in government spending. C. The Fed can inject reserves into the system which will provide the ability for financial institutions to expand their loan portfolios. But the Fed cannot force them to do so. D. The Fed can withdraw reserves from the system which will provide the ability for financial institutions to expand their loan portfolios. But the Fed cannot force them to do so. E. None of the above statements are correct.

Explanation / Answer

B. When an increase in G is financed through Treasury borrowing, interest rates may fall resulting in a decrease in private sector spending that could offset the expansionary impact of the increase in government spending.

This is the right statement.

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