The liquidity trap occurs when an expansionary monetary policy fails to raise interest rates or income, and hence fails to encourage economic growth. The liquidity trap is monetary policy's most extreme effect. It's a circumstance in which the general population is willing to hold on to whatever amount of money is offered at a particular interest rate. They do so because of dread of negative outcomes such as deflation and conflict.
In that circumstance, open market activities used to implement monetary policy have no effect on the interest rate or the level of income. The interest rate is unaffected by monetary policy in a liquidity trap. At short-term zero percent interest rates, there is a liquidity trap. When the interest rate is zero, the public will not want to keep any bonds because money, which pays zero percent interest as well, has the advantage of being useful in transactions.Therefore, if there is no interest rate, an increase in money supply will not persuade anyone to buy bonds, lowering the rate of interest on bonds below zero.