Question

A very low rate of inflation during a recession can lead to: A. a liquidity trap which makes fiscal policy more effective. B. a liquidity trap, which makes monetary policy ineffective. C. government budget deficits. D. a liquidity trap, which makes monetary policy effective. E. government budget surpluses.

Answer 1

Answer:

C. government budget deficits.

Explanation:

In the case when there is a very less inflation rate at the time of recession period so it would be considered as a government budget deficit as the revenue would be reduced during the recession time and at the same time the cost would be rised

Therefore as per the given situation, the option c is correct

And, the rest of the options would be considered as incorrect