Which of the following is true about monetary policy in the liquidity trap?
A. An expansion of the money supply will have the large effect of raising interest rates when the economy is in the liquidity trap.
B. Monetary policy will be unable to reduce interest rates further to stimulate investment.
C. The demand for money is interest-inelastic in the liquidity trap.
D. The opportunity cost of holding money is relatively high at interest rates implied by the liquidity trap.
Answer: B
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U.S. exports create a ________.
A. supply of foreign currencies and a demand for dollars in the foreign exchange markets B. supply of foreign currencies and a supply of dollars in the foreign exchange markets C. demand for foreign currencies and a demand for dollars in the foreign exchange markets D. demand for foreign currencies and a supply of dollars in the foreign exchange markets
In practice, one of the principal problems with aggregate demand management is that
A) changes in aggregate demand do not affect output. B) changes in aggregate demand cannot reduce unemployment. C) changes in aggregate demand are highly inflationary. D) stabilization policies could increase aggregate demand too much and at the wrong times.
Economic theory suggests that if natural resources can be held as private property, then
A. conservation will be nonexistent. B. people will simply hold them and refuse to make them available. C. owners will have an incentive not to abuse them. D. natural resources will be sold off for immediate use.
In the long run, fixed costs are
A) sunk. B) avoidable. C) larger than in the short run. D) not included in production decisions.