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g The liquidity trap refers to the situation where Multiple Choice the Fed adds excess reserves to the banking system, but it has minimal positive effect on lending, investment, or aggregate demand. excessive consumer debt limits the growth in consumer spending necessary to bring the economy out of recession. the public debt is so large that federal borrowing drives up interest rates and discourages private sector spending. a financial crisis causes a run on banks and the elimination of billions in excess reserves.

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Answer:

The Fed adds excess reserves to the banking system, but it has minimal positive effect on lending, investment, or aggregate demand

Explanation:

liquidity trap can be regarded as a case whereby monetary policy becomes ineffective as a result of very low interest rates, and activities of

consumers, whereby consumer will prefer saving their money instead of

investing it in some investment as well as higher-yielding bonds. It should be noted that the The liquidity trap refers to the situation where The Fed adds excess reserves to the banking system, but it has minimal positive effect on lending, investment, or aggregate demand

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