When the Economy Is in a Liquidity Trap with a Zero

question 9

Multiple Choice

When the economy is in a liquidity trap with a zero interest rate:

• A) the central bank is unable to lower interest rates in response to falling prices.
• B) the central bank is unable to raise interest rates in response to rising prices.
• C) the central bank abandons monetary policy altogether.
• D) the central bank is unable to raise interest rates in response to falling prices.
• E) the central bank is unable to lower interest rates in response to rising prices.

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