Inability to use monetary policy because the nominal rate of interest cannot fall below zero is called:

Question

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The inability to use monetary policy due to zero nominal interest rate is referred to as the liquidity trap. This is because individuals may prefer to hold onto their money instead of investing or lending it out, even if the central bank were to increase the money supply and lower interest rates, resulting in the ineffectiveness of monetary policy.

Inability to Use Monetary Policy Because the Nominal Rate of Interest