In the Keynesian model, changes in the money supply cause changes in
A) saving.
B) investment.
C) government spending.
D) aggregate supply.

Question

Quizplus · Accepted Answer

Changes in the money supply directly affect interest rates, which in turn affect investment. As interest rates decrease due to an increase in the money supply, firms and individuals are more likely to borrow and invest in projects, leading to an increase in aggregate demand. Changes in the money supply may also indirectly affect government spending and saving through their impact on interest rates and aggregate demand. However, the direct impact is on investment.

In the Keynesian Model, Changes in the Money Supply Cause