In the Case Where Money Demand Is Completely Interest Insensitive

question 5

Multiple Choice

In the case where money demand is completely interest insensitive (interest elasticity equals zero) ,an increase in the quantity of money will

• A)increase income but leave the interest rate unchanged.
• B)increase income and lower the interest rate.
• C)lower the interest rate but leave income unchanged.
• D)leave both income and the interest rate unchanged.

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Definitions:

Direct Labor

Labor costs that are directly attributed to the work on specific goods or services, easily traced to individual units of production.

Manufacturing Overhead

These are indirect costs associated with manufacturing, not directly attributable to a specific product, such as factory rent, utilities, and maintenance.

Direct Materials

The raw materials used in the manufacturing process of a product that are directly incorporated into the final product.

Raw Materials Inventory

Stocks of unprocessed materials that are used in the production process, awaiting use in manufacturing.