The liquidity trap
A)Refers to the vertical portion of the money demand curve.
B)Refers to the possibility that interest rates may not respond to changes in the money supply.
C)Implies that people are willing to hold very limited amounts of money at low interest rates.

Question

Quizplus · Accepted Answer

The liquidity trap refers to the possibility that interest rates may not respond to changes in the money supply, due to people's unwillingness to invest or spend the excess money, even with very low interest rates.

The Liquidity Trap