The situation in which short-term interest rates are pushed to zero,leaving the central bank unable to lower them further is known as
A)the Taylor rule.
B)a liquidity trap.
C)a zero-sum game.
D)an interest rate panic.

Question

Quizplus · Accepted Answer

A liquidity trap occurs when monetary policy becomes ineffective because interest rates have reached zero and there is no incentive for individuals or businesses to invest or borrow. The central bank is unable to lower interest rates further to stimulate the economy. The Taylor rule is a guideline for central banks to set interest rates based on inflation and output, but it is not related to a liquidity trap. A zero-sum game is a situation in which one person's gain is another person's loss, and it is not related to monetary policy. An interest rate panic refers to a sudden increase in interest rates, which is also not related to a liquidity trap.

The Situation in Which Short-Term Interest Rates Are Pushed to Zero,leaving