The liquidity trap
A. Refers to the possibility that interest rates may not respond to changes in the money supply.
B. Occurs when people wish to hold more and more money as interest rates fall.
C. Refers to the vertical portion of the money demand curve.
D. Implies that people are willing to hold very limited amounts of money at low interest rates.
Answer: A
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The country Happy Land claims that it is producing everything its citizens consume. This situation is called
A. a closed economy. B. an open economy. C. autarky. D. protectionism.
If persistent inflation was due to declines in long-run aggregate supply, what pattern would be observed?
A) Only prices of services would increase; prices of goods would remain constant. B) Increases in the price level would occur simultaneously with increases in real GDP. C) Increases in the price level would occur simultaneously with decreases in real GDP. D) Only prices of goods would increase; prices of services would remain constant.
If the consumption function is C = 25 + 0.9y and income increases by $100, then savings will increase by
A) $10. B) $25. C) $90. D) $115.
According to the Coase theorem, part of what is needed for private transactions to be efficient is that property rights
A) must be defined, but it does not matter who owns the property. B) must be defined, and it is crucial as to who owns the property. C) need not be defined as long as there are no transactions costs present. D) need to be defined by the government to avoid producers from exploiting high transactions costs.