A liquidity trap is said to exist when a change in monetary policy has no effect on
A) the money supply.
B) the natural level of employment.
C) aggregate supply.
D) interest rates.

Question

Quizplus · Accepted Answer

In a liquidity trap, interest rates are already at or near zero and cannot be lowered further, so a change in monetary policy (such as decreasing the interest rate target) will not have any effect on interest rates or the economy as a whole. The money supply, natural level of employment, and aggregate supply may all be affected by various factors, but they are not directly related to a liquidity trap.

A Liquidity Trap Is Said to Exist When a Change