If money demand is extremely sensitive to changes in the interest rate, the money demand curve becomes almost horizontal. If the Fed expands the money supply under these circumstances, then the interest rate will
A) fall substantially and investment and consumer spending will fall substantially.
B) rise substantially and investment and consumer spending will rise substantially.
C) fall substantially and investment and consumer spending will change very little.
D) change very little and investment and consumer spending will change very little.
Answer: D
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A. 2,500. B. 5,000. C. 10,000. D. 25,000.
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A) understand extremely complex phenomenon. B) build a model that is as close to the real world as possible. C) focus on the variables that are important to an economic theory. D) A and C