The economy is in the horizontal portion of the AS curve, there is a liquidity trap, and investment spending is sensitive to changes in the interest rate. According to the Keynesian transmission mechanism, if the money supply increases the interest rate __________, investment spending __________, the AD curve __________ and the price level __________
A) falls; rises; shifts to the right; rises
B) falls; rises; shifts to the right; remains unchanged
C) does not change; does not change; does not change; does not change
D) does not change; shifts to the left; does not change; rises
E) rises; falls; left; falls
C
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