The inability to use monetary policy because the nominal rate of interest cannot fall below zero is called:
A) liquidity preference.
B) money neutrality.
C) liquidity trap.
D) money illusion.

Question

Quizplus · Accepted Answer

The inability to use monetary policy when the nominal interest rate is already at zero is called a liquidity trap. In this scenario, people hold onto their money rather than spending it even though interest rates are low, which renders monetary policy ineffective.

The Inability to Use Monetary Policy Because the Nominal Rate