____________ is a situation in the bonds market when the rate of interest falls to its lowest level and the speculative demand for money becomes perfectly elastic.
Show answer & explanation
Correct answer: C
Explanation
The correct answer is Option 3. i.e. Liquidity trap.
- Liquidity trap is a situation where people prefer to hold cash in a savings account rather than invest or spend.
- Interest rates fall, increasing household savings, which increases the money supply in the liquidity trap.