A Liquidity Trap Is Said to Exist When a Change

question 136

Multiple Choice

A liquidity trap is said to exist when a change in monetary policy has no effect on

• A) the money supply.
• B) the natural level of employment.
• C) aggregate supply.
• D) interest rates.

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Definitions:

Income Tax Expense

The cost to a company for the taxes it owes on its income, reflecting the financial effect of taxes on its profits.

Temporary Differences

Differences between the tax basis of an asset or liability and its carrying amount in the financial statements, which will result in taxable or deductible amounts in the future.

Permanent Differences

Differences between taxable income and accounting income that arise due to items recognized in one manner for accounting purposes and in another manner for tax purposes, and they do not reverse over time.

Permanent Differences

Differences between taxable income and accounting income that originate in one period and do not reverse over time, affecting the effective tax rate.