The fact that investors can always hold cash creates:

Question

Quizplus · Accepted Answer

The ability of investors to hold cash creates a problem for monetary policymakers when short-term interest rates approach zero because it limits the effectiveness of traditional monetary policy tools such as reducing interest rates to stimulate borrowing and spending. In this situation, central banks may need to turn to unconventional policies such as quantitative easing or negative interest rates to stimulate the economy.

Answer: C  
 The fact that investors can always hold cash creates an upward bound on nominal interest rates because if interest rates are too low or negative, investors may choose to hold cash instead of investing. This limits how low interest rates can go and keeps them from becoming too negative.

The Fact That Investors Can Always Hold Cash Creates