Question

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 __________. Question 8 options:

Answer 1

Answer:

does not change; does not change; does not change; does not change;

Explanation:

According to the Keynesian transmission mechanism, if the money supply increases the interest rate does not change, investment spending does not change, the AD curve does not change and the price level does not change.

Keynesian maintain that transmission mechanisms are indirect. That is, changes in the money supply affect aggregate demand via changes in interest rates or exchange rates.