Economics · Monetary Economics
Which of the following best illustrates a liquidity trap?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The government increases taxes to reduce fiscal deficit.
- 2Interest rates are near zero, but people prefer holding cash instead of investing.✓
- 3Commercial banks stop lending due to high default risks.
- 4The central bank raises interest rates to control inflation.
Correct answer
Interest rates are near zero, but people prefer holding cash instead of investing.
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