Economists who are skeptical about the relevance of "liquidity traps" argue that ss
A) a central bank continues to have tools to stimulate the economy, even after its interest rate target hits its lower bound of zero.
B) a central bank continues to have the option of committing itself to future monetary contraction, even after its interest rate target hits its lower bound of zero.
C) a central bank can greatly reduce the likelihood of a liquidity trap by setting the target rate of inflation at zero.
D) while the concept of a liquidity trap is theoretically possible, nothing resembling a liquidity trap ever has been observed in the real world.

Question

Quizplus · Accepted Answer

Economists who are skeptical about the relevance of "liquidity traps" argue that a central bank has other tools to stimulate the economy, such as quantitative easing, even when the interest rate target hits the lower bound of zero. This means that the central bank still has the ability to affect economic conditions, even when interest rates cannot be lowered further.

Economists Who Are Skeptical About the Relevance of "Liquidity Traps