A situation in which a zero interest rate has been reached, and yet the Fed continues to increase the money supply by increasing reserves, is known as
A)a liquidity trap.
B)an asymptotic limit.
C)quantitative easing.
D)a liquidity expansion.
E)None of these.

Question

Quizplus · Accepted Answer

When interest rates are near zero and monetary policy is unable to stimulate the economy, the Fed may turn to quantitative easing (QE) to increase the money supply and encourage lending and investment. QE involves the Fed purchasing government bonds and other securities, which increases bank reserves and lowers long-term interest rates. This can help stimulate borrowing and investment, even when short-term interest rates are already at zero.

A Situation in Which a Zero Interest Rate Has Been