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:

Epiphysis

The end part of a long bone, initially growing separately from the shaft and later fusing to form mature bone.

Periosteum

A dense layer of vascular connective tissue enveloping the bones except at the surfaces of the joints.

Endosteum

A thin vascular membrane that lines the inner surface of the bone in the medullary cavity.

Supination

The outward rotation of the forearm or foot, a movement that can influence the body's alignment and function.