Monetary policy will be ineffective if
A)The demand for money is very sensitive to changes in the interest rate,but the investment demand is not.
B)The demand for money and investment demand are both very sensitive to changes n the interest rate.
C)Interest rates are sensitive to the quantity of money supplied,and investment spending is sensitive to changes in the interest rate.

Question

Quizplus · Accepted Answer

If the demand for money is very sensitive to changes in the interest rate, but the investment demand is not, then changes in interest rates may not have a significant impact on investment spending. This can make monetary policy less effective in stimulating economic growth or controlling inflation. In the other options, both the demand for money and investment demand are sensitive to changes in interest rates, or the interest rates are sensitive to the quantity of money supplied, but investment spending is sensitive to changes in interest rates, which can make monetary policy more effective.

Monetary Policy Will Be Ineffective If