A change in the money supply will change investment when
A) the money supply is a function of the price level.
B) investment is interest-sensitive.
C) investment depends only on the level of GDP.
D) investment is interest-insensitive.
E) the supply for money is a function of the interest rate.

Question

Quizplus · Accepted Answer

Investment is interest-sensitive, meaning that changes in the interest rate affect the amount of investment. A change in the money supply can lead to changes in interest rates, which can in turn affect investment. Therefore, option B is the correct choice. Options A, C, and D are incorrect because they do not take into account the effect of interest rates on investment. Option E is incorrect because it refers to the supply of money, not the change in the money supply.

A Change in the Money Supply Will Change Investment When