Which of the Following Is a Reason Why Monetary Policy

question 67

Multiple Choice

Which of the following is a reason why monetary policy can be effectively used to stimulate aggregate demand in the short run?

• A) Monetary policy stimulates aggregate demand by working through the positive relationship between the price level and the quantity of investment demanded.
• B) Monetary policy stimulates aggregate demand by working through the negative relationship between the interest rates and the quantity of investment demanded.
• C) Monetary policy stimulates aggregate demand by working through the positive relationship between the interest rates and the general price level.
• D) Monetary policy stimulates aggregate demand by working through the positive relationship between the interest rates and the quantity of investment demanded.

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Definitions:

Demand Curve

A graph showing the relationship between the price of a good and the quantity of that good consumers are willing and able to buy.

Perfectly Elastic

A situation in economic theory where the quantity demanded or supplied responds infinitely to changes in price.

Perfectly Inelastic

A situation in which the demand for a good or service does not change in response to changes in price.

Elasticity of Demand

A measure of how much the quantity demanded of a good responds to a change in the price of that good, with higher elasticity indicating greater responsiveness.