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:

Population mean

The average of a set of characteristics or values for the entire population.

Confidence interval estimate

A range of values, derived from sample statistics, that is likely to contain the value of an unknown population parameter, given a specified level of confidence.

Standard deviation

A measure of the amount of variation or dispersion of a set of values, indicating how spread out the values in a data set are.

Electric usage

The amount of electrical energy consumed by a residence, industry, or equipment in a specific period.