When an Economy Is in a Liquidity Trap

question 103

Multiple Choice

When an economy is in a liquidity trap

• A) monetary policy cannot be used to influence the exchange rate.
• B) monetary policy can be used to drive interest rates down, but not to drive them up.
• C) there is an excess demand for bonds.
• D) people and institutions avoid holding cash balances.
• E) it can escape only by introducing a hard, or illiquid, currency.

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Definitions:

Learned Optimism

The process of developing a mindset that fosters a positive attitude towards challenges and setbacks.

Self-Directed Interventions

Personal initiatives or strategies designed to change behavior, improve health, or achieve self-improvement without direct supervision from others.

Pessimistic Thoughts

Negative thoughts focused on anticipating undesirable outcomes or emphasizing the worst aspects of a situation.

Optimistic People

Individuals who tend to maintain a positive outlook on life, expecting positive outcomes even in challenging situations.