Suppose an economy existed in which investment, net exports, and consumption were not sensitive to changes in interest rates. For this economy, the AD curve would
A)have a slope less than 1 but greater than zero.
B)be horizontal.
C)have a negative slope.
D)be vertical.
E)have a slope equal to 1.

Question

Quizplus · Accepted Answer

If investment, net exports, and consumption were not sensitive to changes in interest rates, then the AD curve would be solely determined by the money supply. In this case, the AD curve would be vertical, meaning that changes in the money supply would only affect the price level, not output.

Suppose an Economy Existed in Which Investment, Net Exports, and Consumption