Which of the following is true in case of the orthodox (early) Keynesians ? 1. Interest elasticity of…
Early Keynesians held that the demand for money is highly interest-elastic, with the liquidity trap as the extreme case (statement 1), and that money demand is unstable…
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Which of the following is true in case of the orthodox (early) Keynesians ?
1. Interest elasticity of demand for money is extremely high.
2. Interest elasticity of demand for money is low.
3. Changes in the quantity of money do not have important predictable effects on the level of economic activity.
4. Demand for money is unstable.
Answer and explanation
Correct answer B
Early Keynesians held that the demand for money is highly interest-elastic, with the liquidity trap as the extreme case (statement 1), and that money demand is unstable because of shifting liquidity preference (statement 4). They concluded that changes in the money supply have no important, predictable effect on economic activity (statement 3). Low interest elasticity of money demand (statement 2) is the monetarist position, so sets including it are wrong.
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UGC NET Economics