To Avoid Falling into a Liquidity Trap, Most Central Banks

question 47

Multiple Choice

To avoid falling into a liquidity trap, most central banks:

• A) seek a positive but small inflation rate rather than zero inflation.
• B) target inflation rather than the money supply.
• C) conduct open-market operations to change the money supply instead of changing the discount rate.
• D) aim at a target of zero inflation so that inflation expectations are zero too.

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Definitions:

System-1

Fast, automatic, intuitive approach of processing information, often contrasted with the slower, more deliberate reasoning of System 2.

System-2

A term used in psychology referring to the analytical and conscious mode of thinking, characterized by slower, more deliberate, and logical reasoning.

Ethical Decisions

Choices made based on moral principles and values, considering what is right and wrong.