The inability to conduct expansionary monetary policy at the zero lower bound is also known as:
A) stagflation.
B) a liquidity trap.
C) crowding out.
D) Ricardian equivalence.

Question

Quizplus · Accepted Answer

When interest rates are already close to zero, expansionary monetary policy loses its potency, resulting in an economic situation called a liquidity trap where interest rates are low but savings remain high, making it difficult for monetary policy to stimulate economic growth.

The Inability to Conduct Expansionary Monetary Policy at the Zero