Macro Chapter 12
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A liquidity trap occurs when:
nterest rates fall so low that monetary policy is no longer effective.
Debt-deflation theory
A theory according to which an unexpected fall in price level redistributes wealth from debotors to creditors and therefore reduces total spending in the economy
Pigou effect
The increase in consumer spending that results when a fall in the price level raises real money balances and thereby consumers wealth
Monetary Transmission mechanism
The process by which changes in the money supply influence the amount that households and firms wish to spend on goods and services
