Question

Suppose that the central bank can influence expectations about inflation by promising to increase the money...

Suppose that the central bank can influence expectations about inflation by promising to increase the money supply in the future.

In a liquidity trap，the central bank promising to increase the money supply in the future would cause___________(increase, decrease or not change) in expected​ inflation,which in the current period ___________(would cause a shift to the left; would cause a shift to the right; would cause no change ; may cause the shift to left, the shift to right or no change) in money supply and ____________(would cause a shift to the left; would cause a shift to the right; would cause no change ; may cause the shift to left, the shift to right or no change) in money demand, which would lead to____________(increase; decrease; not change; possibly an increase, a decrease or no change) in the current price level.

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Answer #1

In a liquidity trap，the central bank promising to increase the money supply in the future would cause_______not change____in expected​ inflation,which in the current period ______would cause no change_____in money supply and ______would cause no change______in money demand, which would lead to______not change______in the current price level.

This all is because of liquidity trap, because in liquidity trap, the LM curve becomes horizontal and thus mometary policy become completely ineffective.

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