_________ is a situation in the bonds market when the rate of interest falls to its lowest level and the speculative demand for money becomes perfectly elastic.

The correct answer is Liquidity trap.

Key Points

• A liquidity trap is an economic situation where people hoard financial capital instead of investing or consuming it as the interest rates are low and savings rates are high which renders the monetary policy ineffective.
• Speculative demand for money is inversely related to the rate of interest i.e. higher the rate of interest smaller will be speculative demand for money and vice versa. 
• Therefore curve of speculative demand for money is downward sloping to right.
• A liquidity trap is caused when people hoard cash because they expect an adverse event such as deflation, insufficient aggregate demand, or war.

Additional Information

• The cash crunch is a term pretty common among start-ups and budding businesses. ​
• A cash crunch happens when a company runs low on cash; this in a way impacts the operations of the business.
• The PES for perfectly elastic supply is infinite, where the quantity supplied is unlimited at a given price, but no quantity can be supplied at any other price.
• The velocity of money is a measurement of the rate at which money is exchanged in an economy.