The effectiveness of monetary policy in bringing about changes in real GDP is enhanced when the

Question

Quizplus · Accepted Answer

When the investment demand curve is relatively flat and the money demand function is relatively steep, changes in interest rates brought about by monetary policy will have a greater impact on investment and consumption spending, leading to changes in real GDP. If the investment demand curve were relatively steep, changes in interest rates would have less impact on investment, and if the money demand function were relatively flat, changes in interest rates would have less impact on consumption. Therefore, a relatively flat investment demand curve and a relatively steep money demand function enhance the effectiveness of monetary policy in bringing about changes in real GDP.

The Effectiveness of Monetary Policy in Bringing About Changes in Real