If a country's nominal interest rate is zero, then
A) the country's economy is in a liquidity trap.
B) exchange rates with other countries are likely to decline.
C) exchange rates with other countries are likely to increase.
D) monetary policy is likely to be very effective in stimulating the economy.
E) the country's economy has achieved monetary equilibrium.

Question

Quizplus · Accepted Answer

A zero nominal interest rate typically indicates that a country is in a liquidity trap, meaning that monetary policy is no longer effective at stimulating economic growth because individuals and businesses are hoarding cash instead of spending or investing it.

If a Country's Nominal Interest Rate Is Zero, Then