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:

Cravat

A triangular bandage, folded lengthwise; it may be used as a circular, figure-eight, or spiral bandage to control bleeding or to tie splints in place.

Dressing

Material used to cover and protect a wound to promote healing and protect from further harm or infection.

Forehead

The part of the face above the eyebrows and below the hairline.

High-Voltage

Refers to electrical systems or components operating at a voltage level significantly higher than standard, often indicating increased power and potential danger.