Question

1. match the economic term to its meaning:
2. inflation targeting
3. liquidity trap
4. fractional reserve system

a. fed policy to keep inflation near a set rate
b. banks keep part of deposits, lend the rest*
c. when interest rates cant fall further to stimulate economy

Explanation:

• Inflation targeting: Central banks (like the Fed) aim to keep inflation at a specific rate. So, "Inflation targeting" matches with "Fed policy to keep inflation near a set rate".
• Liquidity trap: A situation where interest rates are so low that further cuts won't stimulate the economy. Thus, "Liquidity trap" matches with "When interest rates can't fall further to stimulate economy".
• Fractional reserve system: Banks hold a fraction of deposits as reserves and lend out the rest. Hence, "Fractional reserve system" matches with "Banks keep part of deposits, lend the rest".

Answer:

1. a. Fed policy to keep inflation near a set rate
2. c. When interest rates can't fall further to stimulate economy
3. b. Banks keep part of deposits, lend the rest