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:

Adjusted Trial Balance

A trial balance after adjustments, showing the balances of all accounts including those adjusted, which will be used for preparing financial statements.

Supplies Expense

An accounting term referring to the cost consumed in using up supplies such as office materials over a specific accounting period.

Error

A mistake in the recording, classification, or processing of financial and non-financial transactions in accounting records.

Accrued Interest

Accrued interest is the interest that has accumulated on a loan or bond but has not yet been paid. It is recognized in the accounting records before the payment is made.