An economy is in a liquidity trap when:
A) inflation is high and interest rates are low.
B) inflation is low and unemployment is high.
C) interest rates are near zero and the economy is weak.
D) inflation is near zero and unemployment is near zero.

Question

Quizplus · Accepted Answer

A liquidity trap occurs when interest rates are near zero and monetary policy becomes ineffective because people prefer to hold onto cash rather than invest in bonds or other assets, often due to a weak economy.

An Economy Is in a Liquidity Trap When