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In: Economics

Which of the following best describes the Keynesian monetary transmission​ mechanism? A. An increase in the...

Which of the following best describes the Keynesian monetary transmission​ mechanism?

A.

An increase in the money supply causes a decrease in the interest​ rate, which shifts the investment function and the aggregate demand curve rightward.

B.

An increase in the money supply causes a decrease in the interest​ rate, which increases the amount of investment and shifts the aggregate demand curve leftward.

C.

An increase in the money supply causes a decrease in the interest​ rate, which shifts the investment function and causes a movement along the aggregate demand curve.

D.

An increase in the money supply causes a decrease in the interest​ rate, which increases the amount of investment and shifts the aggregate demand curve rightward.

Solutions

Expert Solution

Ans.-(D)

Under transmission mechanism, an increase in the money supply will lower the interest rate which in turn increases investment spending, and therefore shift AD curve to the right.

Rahul Sunny answered 1 year ago
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