When a country finds itself in a liquidity trap, monetary policy can be ineffective.

Question

Quizplus · Accepted Answer

In a liquidity trap, interest rates are already at or near zero and monetary policy tools such as lowering interest rates or increasing the money supply have little effect on stimulating borrowing and spending. In these situations, fiscal policy (government spending and tax policies) may be more effective in boosting the economy.

When a Country Finds Itself in a Liquidity Trap, Monetary