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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
Answer: C
Diff: 2 Type: MC Page Ref: 536
Skill: Recall
Objective List: 21.3 Present empirical evidence on how the demand for money is affected by
changes in interest rates and the level of income
In the liquidity trap, the money demand curve ____.
A) is horizontal
B) is vertical
C) is negatively sloped
D) is positively sloped
Answer: A
Diff: 2 Type: MC Page Ref: 536
Skill: Recall
Objective List: 21.3 Present empirical evidence on how the demand for money is affected by
changes in interest rates and the level of income
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
Answer: C
Diff: 2 Type: MC Page Ref: 536
Skill: Recall
Objective List: 21.3 Present empirical evidence on how the demand for money is affected by
changes in interest rates and the level of income
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
Answer: C
Diff: 2 Type: MC Page Ref: 536
Skill: Recall
Objective List: 21.3 Present empirical evidence on how the demand for money is affected by
changes in interest rates and the level of income