In a Liquidity Trap Caused by Deficient Financial Liquidity,if the Central

question 43

Multiple Choice

In a liquidity trap caused by deficient financial liquidity,if the central bank increases the interest rate it charges on reserves,

• A) aggregate demand shifts right and output increases.
• B) aggregate supply shifts right and output increases.
• C) aggregate demand shifts right, aggregate supply shifts left and output is constant.
• D) aggregate demand shifts left and output decreases.
• E) aggregate supply shifts left and output decreases.

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Definitions:

Fixed Costs

Costs that do not change with the level of output or production, such as rent, salaries, and insurance payments.

Losing Money

Losing money describes a situation where an individual or business expends more money than is received over a certain period, resulting in financial loss.

Average Variable Cost

The sum of all costs that vary with output levels, divided by the total number of units produced.

Marginal Cost

The increase or decrease in total production cost when producing one additional unit of a good.