When borrowers don't respond to short-term interest rates of zero, the economy is in:
A)a liquidity trap.
B)hyperinflation.
C)an asset bubble.
D)maturity transformation.

Question

Quizplus · Accepted Answer

When borrowers don't respond to short-term interest rates of zero, it indicates that the demand for borrowing is very low, and the economy is facing a liquidity trap. This means that the central bank's monetary policy tools, such as reducing interest rates, are ineffective in stimulating borrowing and spending, leading to a stagnant economy.

When Borrowers Don't Respond to Short-Term Interest Rates of Zero