What Challenge Do Monetary Policymakers Face When They Try to Move

question 7

Multiple Choice

What challenge do monetary policymakers face when they try to move an economy out of a liquidity trap?

• A) Consumers are resistant to liquidity, and so policy does not have much impact.
• B) Interest rates are already high, and so raising them more has little impact.
• C) Interest rates are already near zero, and yet an expansionary policy is needed.
• D) Further reducing the money supply is not likely to increase the interest rate as is needed.

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