The Economics of Money Banking and Financial Markets The Business
Quiz 22: Quantity Theory, Inflation, and the Demand for Money
In the Liquidity Trap, Monetary Policy
In the liquidity trap, monetary policy A) has a large impact on interest rates. B) has a small impact on interest rates. C) has no impact on interest rates. D) has a proportionate impact on interest rates.
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In the liquidity trap, the money demand curve A) is horizontal. B) is vertical. C) is negatively sloped. D) is positively sloped.
Evidence suggests that a liquidity trap is possible when A) real interest rates are at zero. B) real interest rates are at or just above zero. C) nominal interest rates are at zero. D) nominal interest rates are at or just above zero.
The reason that economists are so interested in the stability of velocity is because if the demand for money is not stable, then steady growth of the money supply A) is going to promote price stability at the expense of low unemployment. B) is going to promote low unemployment at the expense of price stability. C) is an ineffective way to conduct monetary policy. D) can still be used to conduct monetary policy if the goal is price stability.
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