In the liquidity trap a small change in interest rates produces ________ change in the quantity of money demanded.
A)a small
B)no
C)a proportionate
D)a very large

Question

Quizplus · Accepted Answer

In a liquidity trap, a small change in interest rates produces a very large change in the quantity of money demanded, as people prefer to hold money rather than bonds due to the expectation that interest rates cannot fall further or are too low to compensate for the perceived risk of holding bonds.

In the Liquidity Trap a Small Change in Interest Rates