Japan Appeared to Have Entered a Liquidity Trap at the Turn

question 25

Multiple Choice

Japan appeared to have entered a liquidity trap at the turn of the century because

• A) inflation made currency holdings virtually worthless
• B) the central bank pushed nominal interest rates so high than investment stagnated
• C) consumer spending rose dramatically, depleting savings
• D) deflation pushed real interest rates up to levels that the central bank could not correct
• E) long-term investments depleted the economy of cash

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Definitions:

Bondholders

Individuals or entities that hold the debt securities issued by corporations or governments, entitled to receive the bond's interest payments and the return of principal.

Tax Deductible

Expenses that can be subtracted from gross income to reduce the total amount of income on which tax is assessed.

Bankruptcy

A court-managed method enabling individuals or companies that are unable to pay off their debts to pursue reprieve for either a portion or the entirety of what they owe.

Bearer Form

Bond issued without record of the owner’s name; payment is made to whoever holds the bond.