Economy is currently operating at zero nominal interest rate

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Suppose a liquidity trap exists and current output is below its natural level.(i.e. an economy is currently operating at the zero nominal interest rate)

(a) can this economy return to its natural level automatically? if it can not, explain the mechanism though which this economy fails to return to its natural level?

(b)suggest policy which would bring economy closer to the natural level of output.

Reference no: EM13829976

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