Question 17
[Maximum number: 1]
The diagram shows liquidity preference (LP).
At which rate of interest does the liquidity trap occur?
A
Option A shown in diagram
B
Option B shown in diagram
C
Option C shown in diagram
D
Option D shown in diagram
CAIE A-Level Economics 9.4.7 Demand for money
Practise interpreting liquidity preference, motives for holding money, money-market shifts and liquidity-trap limits to policy.
How this is tested
- identify liquidity-trap points on money-market diagrams and explain policy ineffectiveness
- predict shifts in liquidity preference from income, prices, payment frequency or borrowing
- explain interest as the reward for surrendering liquidity in Keynesian analysis