Assume That Interest Rates Drop and GDP Increases as a Result

question 44

Multiple Choice

Assume that interest rates drop and GDP increases as a result of expansionary monetary policy.What should happen to the demand for real money balances?

• A)it should increase
• B)it should decrease since interest rates will decrease
• C)it will remain unaffected since income will go up but the interest rate will go down
• D)it will remain unaffected since the income velocity of money does not change
• E)we can't tell for sure since we do not know what will happen to the income velocity of money

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