Question

Monetary Policy — End of Chapter Problems During the Great Depression, businesspeople in Canada were very pessimistic about the future of economic growth and reluctant to increase investment spending even when interest rates fell. This pessimism limited the potential for monetary policy to help alleviate the Depression because O decisions to change investment spending depend only on interest rates. O expansionary monetary policy leads to decreases in long-run aggregate supply when businesspeople are pessimistic. O a pessimistic outlook may override other factors that influence investment, limiting the responsiveness of businesses to interest rate changes. O the monetary authorities are unable to decrease interest rates if businesspeople are overly pessimistic.

Answer 1

Answer:—... c ( A pessimistic outlook overrides..........)

Explanation: During the great depression the average price level of goods and services decreased drastically, and even low interest could not compensate .Thus this pessimistic outlook overrided the interest factor. Pessimistic outlook limited the effect of expensionary monetary policy .

other options are incorrect, the first option is incorrect as it says monetary policy to be effective even with pessimistic outlook. 2and option is incorrect, it doesn't say about short run failure of monetary policy. 4th option the statement is not correct because monetary authority is independent and can change interest rate irrespective of businessperson behavior.