What Challenge Do Monetary Policymakers Face When They Try to Move

question 7

Multiple Choice

What challenge do monetary policymakers face when they try to move an economy out of a liquidity trap?

• A) Consumers are resistant to liquidity, and so policy does not have much impact.
• B) Interest rates are already high, and so raising them more has little impact.
• C) Interest rates are already near zero, and yet an expansionary policy is needed.
• D) Further reducing the money supply is not likely to increase the interest rate as is needed.

---

Definitions:

Contribution Margin

The difference between the sales revenue of a company and its variable costs.

Fixed Budget

A budget that remains unchanged and is based on a fixed level of activity, regardless of actual levels of output, sales, or revenue throughout the budget period.

Flexible Budget

A budget that adjusts or flexes with changes in volume or activity levels, allowing for more accurate financial planning and analysis.

Contribution Margin

The difference between sales revenue and variable costs, showing how much revenue contributes to covering fixed costs.