Because of the liquidity trap, the Bank of Canada's creation of billions of dollars in excess reserves during the great recession had:
A)little or no effect on lending by the chartered banks.
B)a significant effect on lending by the chartered banks.
C)the effect of increasing the overnight lending rate.
D)the effect of increasing the bank rate.

Question

Quizplus · Accepted Answer

The liquidity trap occurs when interest rates are already low, and injections of cash into the economy have little or no effect on lending and economic growth. Therefore, the creation of billions of dollars in excess reserves by the Bank of Canada during the great recession had little or no effect on lending by the chartered banks.

Because of the Liquidity Trap, the Bank of Canada's Creation