Asked by
Savannah Thompson
on Dec 17, 2024
Verified
Economists who are skeptical about the relevance of "liquidity traps" argue that
A) a central bank continues to have tools to stimulate the economy, even after its interest rate target hits its lower bound of zero.
B) a central bank continues to have the option of committing itself to future monetary contraction, even after its interest rate target hits its lower bound of zero.
C) a central bank can greatly reduce the likelihood of a liquidity trap by setting the target rate of inflation at zero.
D) while the concept of a liquidity trap is theoretically possible, nothing resembling a liquidity trap ever has been observed in the real world.
Liquidity Traps
A situation in which monetary policy becomes ineffective because people hoard cash instead of spending or investing due to expectations of adverse events.
Central Bank
A central bank is the national financial authority responsible for overseeing the monetary system, managing currency supply, and aiming to maintain economic stability.
Lower Bound
A minimum level, often referring to the lowest interest rate that can be effectively implemented by central banks.
- Recognize the relationship between interest rates, stock prices, and monetary policy.
Verified Answer
WM
Learning Objectives
- Recognize the relationship between interest rates, stock prices, and monetary policy.