1. The liquidity trap exists when (A) the IS-curve is vertical (B)the LM-curve is vertical?

Question

C)the LM-curve is horizontal
D)an increase in government spending is always fully crowded out
E)money demand is completely insensitive to changes in the interest rate

2. If we were in a liquidity trap,
A)investment would be totally interest insensitive
B)fiscal expansion would be unlikely to drive interest rates up
C)monetary policy would be more powerful than fiscal policy
D)an increase in government spending would be totally offset by a decrease in private investment
E)crowding out would be made worse by the inability of monetary policy to accommodate fiscal policy

3. The view that "only money matters" is accurate when
A)investment is totally interest insensitive
B)money demand is completely interest inelastic
C)money demand is completely interest elastic
D)we are in the liquidity trap
E)both C) and D)

4. If the currency-deposit ratio is 23% and the reserve-deposit ratio is 7%, the size of the money multiplier is
A)0.3
B)2.0
C)3.0
D)3.3
E)4.1

Answer 1

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