The phenomenon that interest rates may be so low that increases in the money supply will have no impact on aggregate demand is called
A) the liquidity trap.
B) the horizontality of demand.
C) the sterilization of money.
D) monetary incapacitation.

Question

Quizplus · Accepted Answer

The phenomenon described is known as the liquidity trap, which occurs when interest rates are already so low that a central bank's monetary policy of increasing the money supply (i.e. reducing interest rates further) has little or no effect on stimulating aggregate demand.

The Phenomenon That Interest Rates May Be So Low That