Which of the following could be potential solutions to the liquidity trap?

Question

Choose all Correct Answers:

The Federal Reserve could increase the money supply.

The government conduct expansionary Fiscal Policy

The Federal Reserve could conduct quantitative easing.

The Federal Reserve could sell Treasury securities.

(The government conduct expansionary Fiscal Policy is a correct answer)

Answer 1

The government conduct expansionary Fiscal Policy is the potential way to rid out from liquidity trap.In liquidity trap, people prefer to hold money rather than deposit in the bank or spend and interest rate is close to zero so monetary policy will be ineffective..