In the New Keynesian View, an Increase in Real Money

question 54

Multiple Choice

In the new Keynesian view, an increase in real money balances increases investment spending by

• A)giving business firms more funds to invest.
• B)raising the real interest rate, which makes saving and investing more attractive.
• C)lowering the real interest rate, which reduces the opportunity cost of investing in new plant and equipment.
• D)allowing the government to increase its spending on bridges, highways, and other public works.

---

Definitions:

Fixed Price

A price that does not change over time or in response to market conditions, often set by a seller or agreement.

Budget Line

An illustrated chart depicting all the different pairings of two items that are purchasable within a certain budget and cost framework.

Price of Food

The monetary value assigned to food products, influenced by factors such as production costs, supply and demand.

Rotation

The act of turning around a center or an axis, often used metaphorically to describe a systematical shift in processes or roles.