For monetary policy to be effective in changing planned investment spending:
A)interest rates must not be responsive to changes in the money supply.
B)interest rates must be sensitive to changes in Gross Domestic Product.
C)investment must be sensitive to changes in interest rates.
D)investment must be sensitive to changes in the price level.
E)interest rates must be sensitive to changes in the price level.

Question

Quizplus · Accepted Answer

For monetary policy to be effective in changing planned investment spending, investment must be sensitive to changes in interest rates. This is because monetary policy works by adjusting the money supply, which in turn affects interest rates. When interest rates decrease, it becomes cheaper for firms to borrow money and invest in capital projects, which in turn increases planned investment spending. Therefore, for monetary policy to have an impact on investment spending, there needs to be a strong relationship between changes in interest rates and changes in planned investment spending.

For Monetary Policy to Be Effective in Changing Planned Investment