Describe what the liquidity trap is. Explain how it can be problematic for monetary policymakers
What will be an ideal response?
The liquidity trap describes the situation in which the demand for money is insensitive to changes in interest rates (i.e., the money demand curve is infinitely elastic). In this case, monetary policy has no direct affect on aggregate spending because a change in the money supply will not affect interest rates.
Economics
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Consider a closed economy without the government. If the savings rate in the economy is 15% and the aggregate savings is $6,000, the GDP of the economy is:
A) $15,000. B) $27,000. C) $40,000. D) $30,000.
Economics
In the figure above, with no government involvement and if the colleges are competitive, what is the deadweight loss?
A) $12 billion per year B) $6 billion per year C) $4 billion per year D) zero
Economics