A liquidity trap in money demand occurs when:

CA Foundation · Business Economics · MTP · May 2026
A liquidity trap in money demand occurs when:
(A) A. Money demand is perfectly inelastic
(B) B. Money demand is perfectly elastic
(C) C. Interest rates are extremely high
(D) D. Money supply is zero

Suggested Answer and Working Notes:

Correct Answer: Option (B)

B. Money demand is perfectly elastic

Topics: Money Market

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