If Money Demand Is Extremely Sensitive to Changes in the Interest

question 74

Multiple Choice

If money demand is extremely sensitive to changes in the interest rate,the money demand curve becomes almost horizontal.If the Fed expands the money supply under these circumstances,then the interest rate will

• A)fall substantially and investment and consumer spending will fall substantially.
• B)rise substantially and investment and consumer spending will rise substantially.
• C)fall substantially and investment and consumer spending will change very little.
• D)change very little and investment and consumer spending will change very little.

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Definitions:

Bone Spur

A bony growth formed on normal bone, often due to aging or as a response to friction or pressure.

Fluid

A substance that has no fixed shape and yields easily to external pressure; can be a gas or a liquid.

Genu Valgum

A condition characterized by an inward curvature of the legs, commonly known as "knock-knees."

Knock Knees

A condition where the knees angle in and touch when the legs are straightened, often noticeable when standing.