Liquidity trap occurs when:

CA Foundation · Business Economics · PYQS · May 2025
Liquidity trap occurs when:
(A) A. Interest rates are high, and people prefer bonds over cash balances.
(B) B. Interest rates are near zero, and people prefer holding cash over bonds.
(C) C. Inflation rates are high, reducing purchasing power of money balances.
(D) D. Central banks increase CRR drastically.

Suggested Answer and Working Notes:

Correct Answer: Option (B)

B. Interest rates are near zero, and people prefer holding cash over bonds.

Topics: Money Market

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