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a . When the economy is in a liquidity trap, increasing price levels result in fixed - income earners drowning, as expenses grow while income
a . When the economy is in a liquidity trap, increasing price levels result in fixed - income earners "drowning," as expenses grow while income remains constant. nominal interest rates cannot be lowered any further. deflation occurs because growing debt obligations cause a decrease in aggregate demand. expansionary monetary policy results in a rapidly increasing price level
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