If the overnight rate is only 1%,the economy is dangerously close to:
A) an inflationary spiral.
B) a liquidity trap.
C) very high unemployment.
D) another recession.

Question

Quizplus · Accepted Answer

A 1% overnight rate indicates that interest rates are already very low. If the economy is dangerously close to a liquidity trap, it means that further reductions to the overnight rate may be ineffective in stimulating economic growth because the demand for loans may be very low. This situation can lead to a prolonged period of slow economic growth, deflation, and high unemployment.

If the Overnight Rate Is Only 1%,the Economy Is Dangerously