Question

What is a liquidity trap?

• A. A situation where money supply has no impact on interest rates and demand for bonds
• B. A condition where interest rates keep increasing indefinitely
• C. A state where money is not needed in an economy
• D. A phase of high inflation due to excess money supply

Hint:

Liquidity trap occurs when: \[ \mathrm{Interest\ Rates\ are\ Extremely\ Low} \] People prefer: \[ \mathrm{Holding\ Cash\ instead\ of\ Bonds} \]

Answer 1

The Correct Option is A