Suppose the money market is in the liquidity trap and the Fed increases the supply of money.We expect that

Question

Quizplus · Accepted Answer

In the liquidity trap, interest rates are already very low and cannot be lowered further, resulting in an increase in the money supply not affecting interest rates. As a result, people will end up willingly holding more money rather than investing it in the loanable funds market or spending it, which will not lead to an increase in Real GDP in the short run.

Suppose the Money Market Is in the Liquidity Trap and the Fed