Which Scenario Best Explains the Keynesian Transmission Mechanism When the Money

question 130

Multiple Choice

Which scenario best explains the Keynesian transmission mechanism when the money supply increases while the money market is in a liquidity trap?

• A) The interest rate and investment are not affected; there is no shift in the AD curve.
• 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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