What is a liquidity trap? when deflation occurs because growing debt obligations cause a decrease in aggregate demand. when increasing price levels result in fixed-income earners "drowning" as expenses grow while income remains constant. when expansionary monetary policy results in a rapidly increasing price level. when nominal interest rates cannot be lowered any further. which of these statements about liquidity traps is false? expansionary monetary policy is difficult to achieve. firms are unlikely to undertake investment during liquidity traps because interest rates are prohibitively high. the united states probably experienced a liquidity trap during the great depression. the zero bound of interest rates prevents policy makers from taking some actions that could stimulate economic growth.