Question

why is a fiscal stimulus effective in a liquidity trap​

Answer 1

Answer:

This implies that a government spending stimulus could be used to increase inflation and output, which might get the economy out of the liquidity trap. Erceg and Lindé (2014) find that fiscal stimulus can indeed be used to shorten liquidity traps and even resolve them immediately if the stimulus is large enough.

Answer 2

This implies that a government spending stimulus could be used to increase inflation and output, which might get the economy out of the liquidity trap. Erceg and Lindé (2014) find that fiscal stimulus can indeed be used to shorten liquidity traps and even resolve them immediately if the stimulus is large enough.