A very low rate of inflation during a recession can lead to:
A) a liquidity trap, which makes monetary policy ineffective.
B) a liquidity trap, which makes monetary policy effective.
C) government budget deficits.
D) government budget surpluses.

Question

Quizplus · Accepted Answer

A very low rate of inflation during a recession can lead to a liquidity trap, which makes monetary policy ineffective. In a liquidity trap, interest rates are close to zero, and increasing the money supply doesn't cause people or businesses to borrow more money or spend more money, which can result in an ineffective monetary policy.

A Very Low Rate of Inflation During a Recession Can