If the economy is in liquidity trap, which of the following is most likely to occur?
Monetary policy is ineffective through the usual interest-rate channel in a liquidity trap. Additional money is willingly held at very low interest rates instead of driving…
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If the economy is in liquidity trap, which of the following is most likely to occur?
Answer and explanation
Correct answer A
Monetary policy is ineffective through the usual interest-rate channel in a liquidity trap. Additional money is willingly held at very low interest rates instead of driving those rates lower and stimulating investment. A liquidity trap does not imply a boom or full employment.
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Karnataka SET (KSET)