Modern consensus regarding the use of monetary policy to fight recessions is that expansionary monetary policy

Question

A) is ineffective because the public expects it

B) is harmful because it only increases the aggregate price level

C) has little impact on aggregate demand due to the existence of liquidity traps

D) can be used to increase aggregate demand but at the cost of higher aggregate prices

Answer 1

There is no modern consensus on the use of monetary policy. The Chicago School are dead-set against it:

http://en.wikipedia.org/wiki/Chicago_sch...

and the Neo-Keynesians are for it.

http://en.wikipedia.org/wiki/Keynsianism

Both would agree on D, as far as it goes, but the Chicago School would say that by the time demand increases, it would be too late for the increased demand to do any good, while the Keynesians think the inflation is a price worth paying.