The Keynesian cause-and-effect sequence predicts that an increase in the money supply will cause interest rates to:
A) fall, boosting investment and shifting the AD curve rightward, leading to an increase in real GDP.
B) fall, boosting investment and shifting the AD curve rightward, leading to a decrease in real GDP.
C) rise, cutting investment and shifting the AD curve rightward, leading to an increase in real GDP.
D) rise, boosting investment and shifting the AD curve rightward, leading to an increase in real GDP.
E) fall, cutting investment and shifting the AD curve leftward, leading to a decrease in real GDP.

Question

Quizplus · Accepted Answer

According to the Keynesian theory, an increase in the money supply will lead to a decrease in interest rates. Lower interest rates will lead to an increase in investment, which will shift the aggregate demand (AD) curve rightward, resulting in an increase in real GDP. Therefore, the correct answer is A.

The Keynesian Cause-And-Effect Sequence Predicts That an Increase in the Money