Answer to Question #64060 in Other Economics for Genie
In a liquidity trap, consumers choose to avoid bonds and keep their funds in savings, because of the prevailing belief that interest rates will soon rise.
Because bonds have an inverse relationship to interest rates, many consumers do not want to hold an asset with a price that is expected to decline.
This makes monetary policy ineffective indeed.
Need a fast expert's response?Submit order
and get a quick answer at the best price
for any assignment or question with DETAILED EXPLANATIONS!