Monetary policy responses were rendered ineffective at the height of the GFC in several countries because these countries were caught in _____.

Question

Quizplus · Accepted Answer

A liquidity trap occurs when there is a significant increase in savings and a decrease in investment, which causes interest rates to fall to such a low level that monetary policy, such as reducing interest rates, becomes ineffective in stimulating economic growth. During the GFC, many countries found themselves in a liquidity trap, making it difficult for central banks to increase lending and stimulate economic activity through monetary policy.

Monetary Policy Responses Were Rendered Ineffective at the Height of the GFC