A liquidity trap results from:

Question

Quizplus · Accepted Answer

A liquidity trap occurs when nominal interest rates are at or near zero, making it impossible to stimulate the economy through monetary policy. This occurs because lowering interest rates further is ineffective in encouraging borrowing and investment, as individuals and businesses are already not interested in borrowing at low interest rates. Therefore, the best answer is D, the zero bound of the nominal interest rate. Options A, B, and C are not related to liquidity traps.

A Liquidity Trap Results From