Question

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 1

The Correct Option is C

The correct answer is (C) : Statement I is true but Statement II is false.