An open market purchase of bonds by the central bank will cause which of the following when a liquidity trap situation exists?

Question

Quizplus · Accepted Answer

In a liquidity trap situation, interest rates are already at or close to zero, so an open market purchase of bonds by the central bank will not change the interest rate. Additionally, since the money supply is already abundant and interest rates are low, an increase in the money supply (as may result from the open market purchase of bonds) is unlikely to stimulate output.

An Open Market Purchase of Bonds by the Central Bank