Is There a Way Out of the ‘Liquidity Trap’?

The video discusses the challenges of policy transmission to the real economy, focusing on negative interest rates and quantitative easing (QE). It highlights the limitations of these tools, such as banks passing costs to consumers and the ineffectiveness of negative rates in stimulating borrowing. The discussion includes historical examples, like Japan's long-term low rates, and explores alternative measures like helicopter money. The video concludes with the notion that central banks need more creative solutions to address economic stagnation.

What is one major limitation of quantitative easing (QE) as discussed in the video?

• It cannot compel companies to borrow.

• It reduces consumer spending.

• It forces banks to lend more money.

• It increases inflation too quickly.

What historical example was given to illustrate the use of negative interest rates?

• China in the 2010s

• Germany in the 90s

• Switzerland in the early 80s

• United States in the 2000s

What is the main hope for the Eurozone in using negative interest rates?

• To reduce government debt

• To stimulate borrowing by lowering bond yields

• To increase inflation rates

• To increase consumer savings

What is a potential problem with helicopter money as discussed in the video?

• It leads to excessive government debt.

• People may not spend the money due to economic fears.

• It causes hyperinflation.

• It is difficult to distribute fairly.

According to Keynes, what is a liquidity trap?

• A situation where interest rate cuts have no impact

• A scenario where inflation is uncontrollable

• A condition where banks refuse to lend

• A period of rapid economic growth