Economists Who Are Skeptical About the Relevance of "Liquidity Traps

question 175

Multiple Choice

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.

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