Monetary policy is less effective during:
A) periods of inflation.
B) a liquidity trap.
C) periods of unemployment.
D) a large government budget deficit.

Question

Quizplus · Accepted Answer

A liquidity trap occurs when interest rates are low and savings rates are high, rendering monetary policy ineffective because people prefer to hold onto cash rather than spending or investing it. This situation makes it difficult for central banks to stimulate economic activity through traditional monetary policy tools like lowering interest rates.

Monetary Policy Is Less Effective During