Question
Economics Question on Indifference curve analysis
Given below are two statements :
Statement-I: When the economy is in liquidity trap, the LM curve is horizontal.
Statement-II: Fiscal policy is ineffective when the economy is in liquidity trap.
In the light of the above statements, choose the correct answer from the options given below:
A
Both Statement I and Statement II are true
B
Both Statement I and Statement II are false
C
Statement I is true but Statement II is false
D
Statement I is false but Statement II is true
Answer
Statement I is true but Statement II is false
Explanation
Solution
The correct answer is (C) : Statement I is true but Statement II is false.