What do some economists believe will happen when interest rates drop to almost zero percent?
A) tax revenues increase due to the easy access to money
B) the currency appreciates and exports fall
C) governments increase taxes to make up for budget shortfalls
D) a liquidity trap sets in and monetary policy becomes ineffective

Question

Quizplus · Accepted Answer

When interest rates drop to almost zero percent, there's a risk of a liquidity trap. A liquidity trap occurs when monetary policy becomes ineffective because interest rates are so low that people hold onto their money instead of spending it or investing it, which means that lowering interest rates further won't stimulate the economy. This can lead to a prolonged period of low economic growth or even recession.

What Do Some Economists Believe Will Happen When Interest Rates