The phenomenon that interest rates may be so low that increases in the money supply will have no impact on aggregate demand is called:
a) the horizontality of demand.
b) the liquidity trap.
c) the sterilization of money.
d) monetary incapacitation.
Ans: b) the liquidity trap.
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Without a central bank, such as the Federal Reserve System, banks, if left to themselves, are likely to
a. hold greater excess reserves than socially desirable during a recession b. create insufficient money when the economy is at full employment c. engage in money creation opportunities when the economy is in a recession d. hold no reserves when the economy is in a recession e. lend the least possible amount when the economy is at full employment
Which best describes money as a means of payment?
A. To obtain a double coincidence of wants without money is impossible. B. Money provides an immediate double coincidence of wants. C. Money requires at least two transactions to obtain the double coincidence of wants. D. Money makes sure a double coincidence of wants never occurs.
Some economists believe that a positive aggregate demand shock to an economy with large amounts of excess capacity and unemployment does NOT necessarily cause an increase in prices. Economists who adhere to this belief are followers of
A. supply-side economics. B. classical economics. C. Keynesian economics. D. Say's laws of economics.
Studies have shown that smoking cigarettes can cause heart disease. Assume this is true, and favorable weather has increased the tobacco harvest in North Carolina. In the market for cigarettes, these two developments would
A) decrease demand and decrease supply, resulting in an increase in the equilibrium quantity and a decrease in the equilibrium price of cigarettes. B) increase demand and increase supply resulting in an increase in the equilibrium quantity and an uncertain effect on the equilibrium price of cigarettes. C) decrease demand and increase supply, resulting in a decrease in the equilibrium price and an uncertain effect on the equilibrium quantity of cigarettes. D) decrease demand and increase supply, resulting in an increase in both the equilibrium price and the equilibrium quantity of cigarettes.