A liquidity trap occurs when
A. the demand for loans increases in a country on the gold standard, so that the monetary supply is not able to increase and interest rates rise dramatically.
B. any additions to the monetary base are held as cash by people or reserves at banks.
C. there are runs on banks that are solvent but illiquid.
D. the Fed increases the money supply, causing the expected inflation rate to rise more than the real interest rate declines, so that the nominal interest rate increases.
Answer: B
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According to the Phillips curve, in the short run, if policymakers choose an expansionary policy to lower the rate of unemployment, the economy will experience an increase in inflation.
Answer the following statement true (T) or false (F)
Which statement is true?
A. Currency accounts for about 75% of the U.S. money supply. B. The use of money requires a double coincidence of wants. C. M2 is over $8.5 trillion. D. None of the statements are true.
If the Federal Reserve authorities were attempting to reduce demand-pull inflation, the proper policies would be to:
A. sell government securities, raise reserve requirements, raise the discount rate, and increase the interest paid on reserves held at the Fed banks. B. buy government securities, raise reserve requirements, raise the discount rate, and reduce the amount of interest paid on reserves held at the Fed banks. C. sell government securities, lower reserve requirements, lower the discount rate, and increase the interest paid on reserves held at the Fed banks. D. sell government securities, raise reserve requirements, lower the discount rate, and increase the interest paid on reserves held at the Fed banks.
Refer to the information provided in Figure 5.4 below to answer the question(s) that follow.
Figure 5.4Refer to Figure 5.4. Along the given demand curve, which of the following is true?
A. Demand is less elastic along the segment EF than the segment AB. B. Demand is less elastic along the segment AB than the segment EF. C. Since the demand curve is linear, the price elasticity of demand between each of the points is the same. D. All of the above are true.