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AP Macroeconomics/Unit 4: Financial Sector
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Open Market Operations In A Liquidity Trap
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When the Federal Reserve conducts open market purchases during a liquidity trap, what is the likely effect on nominal interest rates and money market equilibrium?

A

Immediate rise to clear excess money supply

B

Sharp decrease as money supply significantly expands

C

Gradual increase as inflation expectations rise

D

Little to no change as money demand is highly elastic

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