Suppose the money market is in the liquidity trap and the Fed increases the supply of money.Individuals would rather hold __________ than __________ because they expect that bond prices can go no __________.

Question

Quizplus · Accepted Answer

In a liquidity trap, individuals prefer to hold money rather than bonds because they expect that bond prices can go no higher, implying that interest rates cannot go significantly lower. This makes holding cash more attractive than investing in bonds, which are seen as having reached their maximum price potential.

Suppose the Money Market Is in the Liquidity Trap and the Fed