When the Economy Is in a Liquidity Trap with a Zero

question 42

Multiple Choice

When the economy is in a liquidity trap with a zero interest rate, what happens to output when prices decrease?

• A) Output decreases.
• B) Output does not change.
• C) Output initially decreases then increases.
• D) Output increases.
• E) Output initially increases then decreases.

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Definitions:

Persistent Stress

A state of ongoing or chronic stress that can lead to significant psychological and physical health problems.

Multiple Sclerosis

A chronic autoimmune disorder affecting the central nervous system, characterized by damage to the myelin sheath that protects nerve cells.

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United States

A federal republic consisting of 50 states, a federal district, five major self-governing territories, and various possessions, known for its large geographic size and diverse culture.