The economy is in the horizontal portion of the AS curve, there is no liquidity trap and investment is sensitive to changes in the interest rate. According to the Keynesian transmission mechanism, if the money supply increases the interest rate will __________, investment spending will __________, the AD curve will shift to the __________, and Real GDP will __________
A) fall; rise; right; not change
B) fall; rise; left; rise
C) rise; rise; right; rise
D) fall; rise; right; fall
E) fall; fall; left; fall
A
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A. an increase in quantity demanded and an increase in the demand for that good. B. an increase in quantity demanded but no change in the demand for that good. C. an increase in demand but no change in quantity demanded. D. no change in demand and no change in quantity demanded.
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a. True b. False Indicate whether the statement is true or false
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A. consumer of the good should pay a tax equal to the marginal benefit to those outside the trade that results from consuming the good. B. producers' marginal costs should be reduced by an amount equal to the marginal cost to those outside the trade that results from production of the good. C. producers' marginal costs should be increased by an amount equal to the marginal cost to those outside the trade that results from production of the good. D. consumer of the good should receive a subsidy equal to the marginal cost to those outside the trade that results from production of the good.