The Liquidity Trap condition occurs at a_______________?
Correct answer: B. Very low rate of interest
- A. Low rate of interest
- B. Very low rate of interest
- C. High rate of interest
- D. Very high rate of interest
Explanation
A liquidity trap occurs when interest rates are already very low, so people prefer holding cash and further increases in money supply do not significantly reduce rates or stimulate spending.
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