The concept of 'Liquidity Trap' implies that monetary policy becomes ineffective because:
A. Money demand is interest-inelastic
B. Interest rates are very high
C. People prefer to hold cash at very low interest rates
D. Investment is highly interest-elastic
Answer: Option C
Solution (By JKSSB Mock Tests)
In a liquidity trap, interest rates are near zero and the demand for money becomes perfectly elastic; additional money supply is absorbed as idle balances without reducing interest rates further.
Explanation:
In classical economics, economic rent is the payment made for the use of land (or other resources in fixed supply) that arises due to its scarcity and differential fertility.
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