The liquidity trap occurs when the demand for money
Is perfectly interest elastic
Is perfectly interest inelastic
Means that an increase in money supply leads to a fall in the interest rate
Means that an increase in the money supply leads to an increase in the interest rate
The marginal rate of tax paid is
The total tax paid/ total income
Total income/ total tax paid
Change in the tax paid/ change in income
Change in income/ change in tax paid
To reduce the supply of money the government could
Reduce interest rates
Buy back government bonds
Sell government bonds
Encourage banks to lend
A fall in interest rates is likely to
Increase aggregate demand
Increase savings
Decrease consumption
Decrease exports
Open market operations occur when the government
Reduces spending
Buys and sells bonds and securities
Increases taxation
Increases the exchange rate
The speculative demand for money occurs when
Individuals hold money just in case an emergency happens
Individuals hold money to buy things
Individuals hold money rather than other assets because they are worried about the price of the other assets falling
Individuals hold money to shop
In a regressive tax system
The amount of tax paid increases with income
The average rate of tax decreases with more income
The average rate of tax falls as income increases
The average rate of tax is constant as income increases
