Assume the Keynesian Transmission Mechanism Is Operational and the Economy

question 144

Multiple Choice

Assume the Keynesian transmission mechanism is operational and the economy is currently operating in the horizontal portion of the AS curve.If the money supply decreases and the demand for money curve is downward sloping and investment is interest-____________,then Real GDP will ___________________.

• A) sensitive; fall
• B) insensitive; fall
• C) sensitive; rise
• D) insensitive; rise
• E) sensitive; remain unchanged

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Definitions:

Demand Increase

This occurs when there is a rise in the quantity of a product or service that consumers are willing and able to purchase at a given price, often due to factors like increased income, changes in tastes, or population growth.

Supply Decrease

A supply decrease refers to a situation where the quantity of a good or service that producers are willing and able to sell at a given price level falls, often due to factors like increased production costs or regulatory changes.

Equilibrium Quantity

The quantity of goods or services that is supplied and demanded at the equilibrium price, where market supply and demand balance each other.

Supply Decrease

A situation in economics where the amount of a certain good or service that producers are willing to provide at a specific price level reduces.