A Traditional Liquidity Trap Is Problematic for a New Keynesian

question 24

Multiple Choice

A traditional liquidity trap is problematic for a New Keynesian policy maker because there is a

• A)strong incentive to create inflation in the long run.
• B)strong incentive to create deflation in the long run.
• C)negative output gap but the interest rate target remains too low.
• D)negative output gap but the interest rate cannot go below zero.
• E)positive output gap but the interest rate cannot go below zero.

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