Reduction of interest rates was ineffective in fighting the Great Recession because:
A) the federal government decreased government spending to balance the budget.
B) crowding-out occurred.
C) the economy was dangerously close to a liquidity trap.
D) businesses and consumers borrowed and spent so much that it caused an inflationary gap.

Question

Quizplus · Accepted Answer

The economy was dangerously close to a liquidity trap, which meant that decreasing interest rates did not stimulate additional borrowing and spending. At this point, even if the interest rates were lowered, consumers and businesses were not eager to take on additional loans and spend more money.

Reduction of Interest Rates Was Ineffective in Fighting the Great