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Basic Question 12 of 15
In a liquidity trap, ______
II. monetary policy becomes completely ineffective.
I. the short-term nominal interest rate is zero.
II. monetary policy becomes completely ineffective.
User Contributed Comments 3
| User | Comment |
|---|---|
| jonan203 | also known as keynesian end point... |
| ConcerNinE | I don't understand why the nominal interest rate is 0 in this case. Could someone help me ? |
| Corey678 | @ConcerNinE . I think its saying: "What should the Fed do in a liquidity trap situation"? Economics states low rates= higher supply of money so the Fed is trying to raise money supply/increase money velocity/positively spike demand by cutting rates to 0 (i.e. low rate) and increase liquidity. But the trap is reducing the effectiveness of the monetary policy implemented by the fed. |
I used your notes and passed ... highly recommended!
Lauren
Learning Outcome Statements
describe qualities of effective central banks; contrast their use of inflation, interest rate, and exchange rate targeting in expansionary or contractionary monetary policy; and describe the limitations of monetary policy
CFA® 2024 Level I Curriculum, Volume 1, Module 4.