Question

In: Economics

1. A liquidity trap occurs at a very flat section of the LM curve. This can...

1. A liquidity trap occurs at a very flat section of the LM curve. This can be cause by an extreme interest elasticity of money. Which of the following are associated with a liquidity trap?

		expansionary monetary policy is ineffective
		fiscal policy becomes ineffective
		the expansionary prospects on additional money become limitless
		inflation becomes a looming problem

1B. Which of following are determinants of money demand for the Keynesian model? (select all that apply)

		transactions demand
		the interest rate
		speculative demand
		futures contracts on commodities

1C. Keynes believed that the slope of the LM curve was rather and that the slope of the IS was rather . Thus fiscal policy would be an effective remedy for economic downturns.

		flat, steep
		flat, flat
		steep, flat
		steep, steep

Expert Solution

1(A) expansionary monetary policy is ineffective

Reason: Horizontal LM implies money demand is completely/ perfect elastic to change in rate of interest i.e. horizontal. Any increase in money supply donot raise the level of income shown through IS-LM.

Fiscal policy is most effective here as increase in government expenditure will shift the IS rightward which means increase in income

1(B)Transaction demand, interest rate and speculative demand

Reason:

1(C) flat,steep

Reason:

Rahul Sunny answered 8 months ago

Consider two economies, one facing a liquidity trap (a horizontal LM curve) and the other does...

Consider two economies, one facing a liquidity trap (a horizontal LM curve) and the other does not (upward sloping LM curve). Discuss the effects of fiscal policy in these two different countries. at least 100-200 words please

The liquidity trap refers to the assumption that the money supply curve is vertical as a...

The liquidity trap refers to the assumption that the money supply curve is vertical as a result of the Fed's control. problem that occurs when interest rates reach such high levels that no individuals want to hold their wealth in the form of money. situation that occurs when an excess supply of money results in people holding more money than they desire. possibility that interest rates drop so low that people willingly hold all the additions to the money supply,...

12. a. Use the IS/LM model to illustrate an economy experiencing liquidity trap and operating below...

12. a. Use the IS/LM model to illustrate an economy experiencing liquidity trap and operating below the natural rate of output. b. Explain and illustrate why expansionary monetary policy would not help to raise the output level to the natural rate. c. Offer two alternative policies that would work to reduce unemployment under these circumstances. Explain and illustrate your answers.

under what conditions is monetary policy most effective? a liquidity trap a steep LM and relatively...

under what conditions is monetary policy most effective? a liquidity trap a steep LM and relatively flat IS a steep IS and relatively flat LM steep IS and LM President Franklin D. Roosevelt enacted the New Deal in 1933. What was this policy? aggressive fiscal policy designed to provide relief, reform and recovery from the Great Depression An act to preserve the laissez-faire approach to government's role in markets. a policy designed to reduce competition from foreign exporters an offer...

A highway has a flat section with a tight curve of radius 40 m. The curve...

A highway has a flat section with a tight curve of radius 40 m. The curve is level with respect to the ground. If the coefficient of static friction between tires and pavement surface is 0.45, what is the maximum speed v at which a car of inertia m can negotiate the curve safely —that is without the tires slipping?

1.The LM curve can shift to the right if there is an increase in the supply...

1.The LM curve can shift to the right if there is an increase in the supply of money or a fall in the price level. In which case does this represent a movement along the aggregate demand curve and in which case does this represent a shift of the aggregate demand curve? Use the IS-LM diagram and Aggregate demand curve in your explanation. 2. Examine how changes in monetary policy and changes in fiscal policy affect the economy in the...

1) If the Treasury yield curve is flat (horizontal), can we say that the investors expect...

1) If the Treasury yield curve is flat (horizontal), can we say that the investors expect that the inflation rates will go down in the future? Please state: Agree, disagree, or uncertain. 2) If the inflation rates are expected to stay the same (at the level we have now) in the future, we can conclude that the yield curve is flat (horizontal). Please state: Agree, disagree, or uncertain. 3) If the inflation rates are expected to go down in the...

Why is the aggregate supply curve very flat at low levels of output below the full-employment...

Why is the aggregate supply curve very flat at low levels of output below the full-employment level?

1-The intersection between the IS curve and the LM curve determines 2-An increase in money supply...

1-The intersection between the IS curve and the LM curve determines 2-An increase in money supply shifts the ______ curve to the right, and the aggregate demand curve______ 3-In the IS-LM model when government spending rises, the interest rate______ and output_______ 4-If taxes are raised, to prevent income from falling the central bank will 5-In the short- run, if IS-LM equilibrium occurs at a level of income below the natural level of output, then in the long-run the price level...

1. In the traditional liquidity trap, what happens when the government engeages in open market operation?...

1. In the traditional liquidity trap, what happens when the government engeages in open market operation? 2. Now suppose money(reserves) are considered less liquid than bonds, what happens?