Evidence suggests that a liquidity trap is possible when
A)real interest rates are at zero.
B)real interest rates are at or just above zero.
C)nominal interest rates are at zero.
D)nominal interest rates are at or just above zero.

Question

Quizplus · Accepted Answer

In a liquidity trap, nominal interest rates are at or just above zero, but real interest rates (which take inflation into account) are still positive. This makes it difficult for monetary policy to stimulate the economy as cutting interest rates further is no longer able to stimulate demand.

Evidence Suggests That a Liquidity Trap Is Possible When