A liquidity trap is a situation in which interest rates are so high that no one can afford to borrow funds.

Question

Quizplus · Accepted Answer

A liquidity trap is actually a situation in which interest rates are so low that people and businesses prefer to hold onto cash instead of investing or spending it. This can make it difficult for central banks to stimulate economic growth through monetary policy, as lowering interest rates further may not encourage enough borrowing and spending.

A Liquidity Trap Is a Situation in Which Interest Rates