A Liquidity Trap Is a Situation in Which Further Increases

question 84

True/False

A liquidity trap is a situation in which further increases in the money supply result in smaller reductions in the interest rate until the interest rate approaches zero.

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Definitions:

Surplus

A surplus refers to the amount by which the quantity of a good produced or supplied exceeds the quantity demanded, often leading to price reductions.

Equilibrium Price

The price at which the quantity of a good or service demanded meets the quantity supplied, resulting in no surplus or shortage.

Surplus

An excess amount of a commodity or resource beyond what is needed or utilized.

Quantity Supplied

In economic terms, this is the amount of a good or service that producers are willing and able to sell at a given price over a specific time period.