Early Keynesians concluded that the quantity of money was not important because they assumed
A)low interest elasticity of money demand and high interest elasticity of the demand for output.
B)high interest elasticity of money demand and low interest elasticity of the demand for output.
C)high interest elasticity of money demand and high interest elasticity of the demand for output.
D)both low interest elasticity of money demand and of the demand for output.

Question

Quizplus · Accepted Answer

Early Keynesians believed that the demand for money was highly interest-elastic, meaning that changes in the interest rate would have a large effect on the quantity of money demanded. However, they also assumed that the demand for output was relatively inelastic, meaning that changes in the interest rate would not have a significant effect on the level of output produced. Therefore, they believed that changes in the quantity of money would primarily affect asset prices (such as bond yields) rather than output levels.

Early Keynesians Concluded That the Quantity of Money Was Not