Under a Liquidity Trap in the New Keynesian Model

question 28

Multiple Choice

Under a liquidity trap in the New Keynesian model,

• A) prices cannot be sticky.
• B) monetary policy is ineffective.
• C) the economy is always efficient.
• D) fiscal policy is ineffective.

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Definitions:

Monetary Profit

Financial gain achieved when the revenue generated from business activities exceeds the expenses, costs, and taxes involved in sustaining the operation.

Adequate Standard

A benchmark or level of quality deemed acceptable or sufficient for its intended purpose, often used in contexts related to living conditions, performance, or regulatory compliance.

Taxes

Mandatory financial charges or levies imposed by a government on its citizens to fund public expenditure and services.

Generalized Reciprocity

A form of exchange that involves giving goods or services with the expectation that their value will be reciprocated at an unspecified future time.