SSC Economics Sample Paper NCERT Sample Paper-1

  • question_answer
    Once interest rates become Zero or near Zero, through conventional monetary policies the central banks can do nothing more. Economists call it as

    A)  Liquidity Trap

    B)  Market Stabilization

    C)  Quantitative Easing

    D)  Debt Trap

    Correct Answer: A

    Solution :

    [a] Liquidity Trap is situation in which prevailing interest rates are low and savings rates are high, making monetary policy ineffective. In a liquidity trap, consumers choose to avoid bonds and keep their funds in savings because of the prevailing belief that interest rates will soon rise. Because bonds have an inverse relationship to interest rates, many consumers do not want to hold an asset with a price that is expected to decline. Market Stabilisation Scheme: securities are issued with the objective of providing the RBI with a stock of securities with which it can intervene in the market for managing liquidity. These securities are issued not to meet the government's expenditure. Quantitative easing is a monetary policy used by central banks to stimulate the economy when standard monetary policy has become ineffective. Debt Trap is a situation in which a debt is difficult or impossible to repay, typically because high interest payments prevent repayment of the principal.

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