There is an increase in the money supply and the interest rate does not change.This is what happens if
A) investment is interest-insensitive.
B) a liquidity trap exists.
C) activist monetary policy is used instead of nonactivist monetary policy.
D) wages and prices are flexible.
E) none of the above

Question

Quizplus · Accepted Answer

In a liquidity trap, the economy is in a situation where interest rates are so low that monetary policy becomes ineffective, and an increase in the money supply does not have an effect on the interest rate. Therefore, even though the money supply has increased, the interest rate remains unchanged.

There Is an Increase in the Money Supply and the Interest