Effective tool to promote expansion than fiscal policy

Reference no: EM131308982

By late summer 2010, the target fed funds rate was between zero and 0.25 percent. At the same time, "animal spirits" were dormant and there was excess capacity in most industries. That is, businesses were in no mood to build new plant and equipment if they were not using their already existing capital. Interest rates were at or near zero, and yet investment demand remained quite low. The unemployment rate was 9.6 percent in August 2010. These conditions suggest that monetary policy is likely to be a more effective tool to promote expansion than fiscal policy. Do you agree or disagree? Explain your answer.

Reference no: EM131308982

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