Question

QUESTION 79 Economists who are skeptical about the relevance of liquidity traps" argue that a. while the concept of a liquidity trap is theoretically possible, nothing resembling a liquidity trap ever has been observed in the real world. a central bank can greatly reduce the likelihood of a liquidity trap by setting the target rate of inflation at zero. c. a central bank continues to have tools to stimulate the economy, even after its interest rate target hits its lower bound of zero. d. 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,

Answer 1

The answer is C, The central bank can overcome the effect of liquid trap using monitory policy. also in the time of liquidity trap central bank can do higher the interest rates.