A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a
A)liquidity preference.
B)liquidity trap.
C)open-market trap.
D)interest-rate contraction.

Question

Quizplus · Accepted Answer

A liquidity trap occurs when interest rates are so low that they do not provide any incentive for banks to lend money, and consumers and businesses do not want to borrow, even when credit is cheap. This can create a situation where monetary policy is ineffective in stimulating the economy, as interest rates cannot be lowered any further.

A Situation in Which the Fed's Target Interest Rate Has