Which of the Following Supports the Keynesian Argument That Interest

question 69

Multiple Choice

Which of the following supports the Keynesian argument that interest rates have no effect on consumption?

• A)Consumers find it difficult to adjust their spending habits.
• B)Higher interest rates will decrease the demand for consumer loans but increase consumer saving.
• C)Interest rates are inflexible because of monopoly power in the economy.
• D)Autonomous consumption is usually zero in most modern economies.

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Definitions:

Risk-free Rate

The theoretical return on investment of an absolutely risk-free asset, often represented by the yield on government securities.

Pure Discount Debt

A type of debt instrument that is issued at a discount to its face value, pays no interest, and is redeemed at its full face value at maturity.

Risk-free Rate

The theoretical rate of return of an investment with zero risk, typically associated with government bonds.

Call Provision

Agreement giving the corporation the option to repurchase the bond at a specified price before maturity.