In the Recent fiNancial and Economic Crises, the Economy Fell

Multiple Choice

In the recent financial and economic crises, the economy fell into a so-called liquidity trap, which means that

A) banks did not have enough reserves to continue lending to firms.
B) the Fed injected reserves into the banking system, but the interest rates remained high.
C) firms did not want to borrow from banks because they had little need for extra liquidity.
D) banks held on to excess reserves and people chose to pay off loans rather than spend.