A monetary policy to accelerate the economy may not encourage spending when consumers and businesses are focused on liquidity.

Question

Quizplus · Accepted Answer

When consumers and businesses are focused on liquidity and uncertain about future economic conditions, they may choose to save rather than spend even when interest rates are low or credit is more readily available due to a monetary policy designed to stimulate the economy. This can lead to a phenomenon known as a liquidity trap, where monetary policy becomes ineffective in boosting economic activity.

A Monetary Policy to Accelerate the Economy May Not Encourage