What challenge do monetary policymakers face when they try to move an economy out of a liquidity trap?
A) Consumers are resistant to liquidity, and so policy does not have much impact.
B) Interest rates are already high, and so raising them more has little impact.
C) Interest rates are already near zero, and yet an expansionary policy is needed.
D) Further reducing the money supply is not likely to increase the interest rate as is needed.

Question

Quizplus · Accepted Answer

In a liquidity trap, interest rates are already near zero, making traditional monetary policy tools like lowering interest rates ineffective in stimulating economic activity. This presents a challenge for policymakers trying to invigorate the economy.

What Challenge Do Monetary Policymakers Face When They Try to Move