Which of the following conditions will most likely coincide with the existence of a liquidity trap?
A) Inflation is zero.
B) The real interest rate is negative.
C) Inflation is rising.
D) Individuals prefer to hold only money and not bonds.
E) Inflation is constant.

Question

Quizplus · Accepted Answer

A liquidity trap occurs when interest rates are so low that individuals and businesses prefer to hold their wealth in cash rather than investing or lending it, leading to a decrease in economic activity. Therefore, choice D, where individuals prefer to hold only money, is the condition that is most likely to coincide with the existence of a liquidity trap.

Which of the Following Conditions Will Most Likely Coincide with the Existence