The liquidity trap refers to the
A) assumption that the money supply curve is vertical as a result of the Fed's control.
B) problem that occurs when interest rates reach such high levels that no individuals want to hold their wealth in the form of money.
C) situation that occurs when an excess supply of money results in people holding more money than they desire.
D) possibility that interest rates drop so low that people willingly hold all the additions to the money supply, rather than use it to buy bonds.
D
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The figure above shows the market for the chemical hydrogen sulfide, the production of which creates an external cost. The government imposes the pollution tax shown in the above figure. What quantity is produced after the pollution tax is imposed?
A) zero pounds B) 80 million pounds C) 160 million pounds D) more than 160 million pounds E) more than 80 million pounds and less than 160 million pounds
The "real" interest rate charged on a loan is the
A) prime rate. B) prime rate plus the risk premium. C) the rate charged minus the costs of supplying credit. D) the rate charged minus the expected rate of inflation.