The 'liquidity trap' causes which policy to become ineffective? MCQ with Answer and Explanation

Question

Share Report Error

The 'liquidity trap' causes which policy to become ineffective?

A. fiscal policy

B. exchange rate policy

C. trade policy

D. expansionary monetary policy

Answer: Option D

Solution (By JKSSB Mock Tests)

In a liquidity trap, interest rates are near zero and monetary expansion does not lower rates further, making monetary policy ineffective.

This question belongs to: Economy GK Economy Set 1

Request complete Subject PDF

Discuss this Question (0)

No comments yet. Be the first to start the discussion!

Practice More Economy Set 1 Questions

Question #1

Which of the following is NOT a function of NABARD?

A. Issuing currency notes

B. Promoting rural development

C. Supervising cooperative banks and RRBs

D. Refinancing rural credit institutions

View Answer & Solution Discuss

Get Complete Subject PDF for Economy GK

Correct Answer: Option A

Explanation:
Issuing currency is the function of RBI. NABARD provides refinancing, promotes rural development and supervises cooperative banks and Regional Rural Banks.

This question belongs to: Economy GK Economy Set 1

Question #2

The concept of 'Fiscal Dominance' refers to:

A. The absence of any deficit

B. Only the dominance of monetary policy

C. A situation in which fiscal policy constraints force the monetary authority to monetise deficits

D. Complete independence of the central bank

View Answer & Solution Discuss

Get Complete Subject PDF for Economy GK

Correct Answer: Option C

Explanation:
Fiscal dominance occurs when the fiscal authority’s need to finance deficits constrains or dictates the behaviour of the monetary authority, often leading to inflationary monetisation.

This question belongs to: Economy GK Economy Set 1

Question #3

In the context of international trade, 'Most Favoured Nation' (MFN) treatment means:

A. Higher tariffs for all countries

B. Preferential treatment to one country only

C. Equal trade treatment to all member countries

D. Ban on imports from certain countries

View Answer & Solution Discuss

Get Complete Subject PDF for Economy GK

Correct Answer: Option C

Explanation:
MFN principle under WTO requires that any advantage granted to one member country must be extended to all other members, ensuring non-discrimination.

This question belongs to: Economy GK Economy Set 1

Explore All Economy Set 1 MCQs