This preview shows page 1. Sign up to view the full content.
Unformatted text preview: rate of interest . Keynesian economists agree that higher or lower rates of interest may have some indirect effect on the marginal efficiency of capital (MEC). This may influence investment behavior to some extent. But the ability of monetary policy to alter the rate of interest significantly is itself a matter of doubt. Keynes concept of liquidity trap shows that rate of interest is always positive and it never falls below a certain minimum level. Therefore monetary policy ceases to be of any effect beyond such a point....
View Full Document
- Fall '10
- Monetary Policy