If interest rates have been lowered substantially and increases in spending have not come about, then lowering the rate further is unlikely to encourage spending, this is know as:
A) interest rate inelasticity.
B) an automatic stabilizer.
C) the Fisher equation of exchange.
D) a liquidity trap.

Question

Quizplus · Accepted Answer

A liquidity trap occurs when interest rates are already low, and savings rates are high, rendering monetary policy ineffective in stimulating further spending or investment.

If Interest Rates Have Been Lowered Substantially and Increases in Spending