What can be an outcome of liquidity traps on inflation?

The correct choice highlights that, in a liquidity trap, an absence of inflation can occur even when monetary policy is expanded. A liquidity trap is a situation where interest rates are low, and savings rates are high, rendering monetary policy ineffective. This typically happens when people prefer to hold on to cash rather than invest or spend it, despite central banks injecting money into the economy.

In such a scenario, the expectation is that increased money supply would lead to higher spending and, consequently, inflation. However, the behavior of consumers and businesses diverges from this expectation. Instead of using the additional liquidity to spur economic activity, they may hoard cash, resulting in stagnant demand and limited price increases.

The other options reflect different economic scenarios that do not accurately represent the characteristics of a liquidity trap. Options discussing price increases due to investor confidence or a controlled rise in the price index suggest active economic engagement that is not present in a liquidity trap situation. Additionally, the increase in government expenses for social welfare does not directly relate to the absence of inflation, as it speaks more to fiscal policy rather than the interplay between inflation and monetary policy dynamics typical of a liquidity trap.