Wednesday, November 17, 2010

How would Schumpeter view a liquidity trap?

As Krugman thinks of a liquidity trap, the power of monetary policy is weak.  Schumpeter agrees, but adds that trying monetary stimulus makes things worse.  Krugman now thinks a monetary stimulus is worth a try. I am not sure what economic theory goes from  'liquidity trap'  to 'let's give it a try'.

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