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:

Preconscious

represents thoughts and feelings that are not immediately in consciousness but can be accessed through attention or stimuli.

Id

In Freudian psychoanalytic theory, the part of the psyche that is the source of instinctual impulses and demands for immediate satisfaction of primitive needs.

Pleasure Principle

A psychoanalytic concept that describes the instinctual seeking of pleasure and avoidance of pain in order to satisfy biological and psychological needs.

Personality

A combination of features that delineates an individual's unique character.