Economics · Monetary Economics
Assertion (A): In a liquidity trap, monetary policy is completely ineffective. Reason (R): In a liquidity trap, the LM curve is horizontal, so any increase in money supply cannot lower the interest rate further. Choose the correct option:
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1A is false, R is true
- 2A is true, R is false
- 3Both A and R are true, but R is not the correct explanation of A
- 4Both A and R are true, and R is the correct explanation of A✓
Correct answer
Both A and R are true, and R is the correct explanation of A
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