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
To reduce the supply of money the government could
Reduce interest rates
Buy back government bonds
Sell government bonds
Encourage banks to lend
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
The precautionary demand for money is
An idle balance
An active balance
Directly related to interest rates
Inversely related to income
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
If there is cyclical unemployment in the economy the government might
Increase interest rates
Encourage savings
cut taxes
Reduce government spending