Monetary policy may not always be effective from "summary" of The General Theory of Employment, Interest, and Money by John Maynard Keynes
Monetary policy, as a tool to manage the economy, may not always yield the desired results. This is because the effectiveness of monetary policy depends on various factors that influence the behavior of economic agents. For one, the interest rate set by the central bank may not have the desired impact on investment and consumption decisions of firms and households. In situations where the economy is facing a liquidity trap, where interest rates are already very low, further reductions in interest rates may not stimulate additional investment and consumption. This is because businesses and consumers may be hesitant to spend or invest, regardless of how low interest rates are. In such cases, monetary policy becomes ineffective in boosting economic activity. Moreover, changes in the mon...
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