When the speculative demand for money becomes perfectly elastic with respect to the interest rate, making the speculative money demand curve…

CA Foundation · Business Economics · PYQS · September 2025
When the speculative demand for money becomes perfectly elastic with respect to the interest rate, making the speculative money demand curve parallel to the X-axis, this situation is called a/an _________
(A) A. Inflationary gap
(B) B. Liquidity trap
(C) C. Monetary expansion
(D) D. Deflationary spiral

Suggested Answer and Working Notes:

Correct Answer: Option (B)

B. Liquidity trap

Topics: Money Market

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