Suppose a liquidity trap situation exists. Which of the following is most likely to occur if taxes are cut? A) no change in output and no change in the interest rate B) an increase in output and an increase in the interest rate C) an increase in output and little change in the interest rate D) an increase in output and a reduction in the interest rate E) none of the above
Suppose a liquidity trap situation exists. Which of the following is most likely to occur if taxes are cut? A) no change in output and no change in the interest rate B) an increase in output and an increase in the interest rate C) an increase in output and little change in the interest rate D) an increase in output and a reduction in the interest rate E) none of the above
Chapter20: Monetary Policy
Section: Chapter Questions
Problem 20SQ
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Suppose a liquidity trap situation exists. Which of the following is most likely to occur if taxes are cut?
A) no change in output and no change in the interest rate
B) an increase in output and an increase in the interest rate
C) an increase in output and little change in the interest rate
D) an increase in output and a reduction in the interest rate
E) none of the above
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