_____ is a situation of very low rate of interest in the economy where every economic agent
expects the interest rate to rise in future and consequently bond prices to fall, causing
capital loss.
Show answer & explanation
Correct answer: B
Explanation
The correct answer is option 2 i.e. Liquidity trap
- A liquidity trap is a situation of a very low rate of interest in the economy where every economic agent expects the interest rate to rise in the future and consequently bond prices to fall, causing capital loss.
- A liquidity trap is an economic situation where everyone hoards money instead of investing or sepnding it.
- It occurs when interest rates are zero or during a recession.