The Liquidity Trap Exists When

question 18

Multiple Choice

The liquidity trap exists when

• A)the IS-curve is vertical
• B)the LM-curve is vertical
• 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

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Definitions:

Interpret Correlation

A statistical measure that describes the extent to which two variables change together, and thus how well one variable can predict the other.

Establish Causation

The process of demonstrating that one factor directly influences or causes an effect on another factor.

Illusory

Based on illusion; not real or caused by false perceptions or interpretations.

Correlation Coefficient

Represents the degree to which two variables are linearly related, with values ranging from -1 to +1 indicating the strength and direction of the relationship.