The concept of 'Liquidity Trap' implies that: MCQ with Answer and Explanation

The concept of 'Liquidity Trap' implies that:
A. Interest rates are very high
B. Further increase in money supply does not reduce interest rates
C. Fiscal policy is ineffective
D. Monetary policy is highly effective
Answer: Option B
Solution (By JKSSB Mock Tests)
In a liquidity trap, interest rates are already so low that people prefer to hold cash, and further increases in money supply do not lead to a fall in interest rates or increase in investment.

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Practice More Economy Set 1 Questions

Question #1
In the theory of the firm, the shutdown point in the short run occurs when:
A. Price equals marginal cost
B. Price equals average total cost
C. Price equals average fixed cost
D. Price equals average variable cost

Correct Answer: Option D


Explanation:
A firm continues to operate in the short run as long as price covers average variable cost. If price falls below AVC, the firm shuts down to minimise losses.

This question belongs to: Economy GK Economy Set 1
Question #2
Which of the following is a feature of the Indian capital market?
A. Presence of stock exchanges and long-term instruments
B. No role of mutual funds
C. Only short-term instruments
D. Absence of regulatory bodies

Correct Answer: Option A


Explanation:
The Indian capital market deals with long-term funds and includes stock exchanges, bonds, equities and mutual funds, regulated by SEBI.

This question belongs to: Economy GK Economy Set 1
Question #3
The 'Public Account of India' contains funds that:
A. are held by the government in a trustee capacity, such as provident funds
B. belong to the government exclusively
C. are borrowed from foreign countries
D. are collected as taxes

Correct Answer: Option A


Explanation:
Public Account includes funds held by government in fiduciary capacity, like provident funds and small savings.

This question belongs to: Economy GK Economy Set 1