Which Scenario Best Explains the Keynesian Transmission Mechanism When the Investment

question 183

Multiple Choice

Which scenario best explains the Keynesian transmission mechanism when the investment demand curve is vertical?

• A) The interest rate falls,investment falls even more,the AD curve shifts rightward,but total expenditures do not change.
• B) The interest rate falls,investment rises,total expenditures rise,and the AD curve shifts rightward.
• C) The interest rate falls,investment falls instead of rising,and the AD curve ends up shifting leftward.
• D) The interest rate falls,but investment does not respond; there is no change in total expenditures and no shift in the AD curve.

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Definitions:

Consumer Price Index

A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care.

Discretionary Income

The amount of an individual's income left for spending, investing, or saving after taxes and personal necessities (like food and shelter) are taken care of.

Necessities

Essential items required for living, such as food, clothing, and shelter.

Taxes

Compulsory financial charges or other levies imposed on an individual or a company by a governmental organization in order to fund various public expenditures.