Which of the following is true about monetary policy in the liquidity trap?
A)Monetary policy will be unable to reduce interest rates further to stimulate investment.
B)The opportunity cost of holding money is relatively high at interest rates implied by the liquidity trap.
C)An expansion of the money supply will have the large effect of raising interest rates when the economy is in the liquidity trap.

Question

Quizplus · Accepted Answer

In the liquidity trap, interest rates are already at or near zero, so monetary policy is unable to further reduce interest rates to stimulate investment.

Which of the Following Is True About Monetary Policy in the Liquidity