When Interest Rates Are Very High, the Economy Is in a Liquidity

question 61

True/False

When interest rates are very high, the economy is in a liquidity trap, and monetary policy may be ineffective in fighting a recession.

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Definitions:

Learned Helplessness

A condition in which a person suffers from a sense of powerlessness, arising from a traumatic event or persistent failure to succeed. It is thought to be one of the underlying causes of depression.

Generalization

The process of drawing a broad conclusion based on specific instances, applying a rule or observation to similar situations.

Partial Reinforcement

A learning condition in which only some of the organism’s responses are reinforced.

Stimulus Generalization

The psychological phenomenon where a learned response to a specific stimulus is evoked by similar stimuli, indicating a broadening of the response criterion.