Keynesian theory
A) states that open market operations result in an increase in the money supply, causing bond prices to rise and interest rates to fall, which increases the investment component of aggregate demand.
B) states that changes in the money supply have no impact on GDP in either the short or long run.
C) is the same as the classical transmission mechanism in all essential elements.
D) states that an increase in the money supply will lower interest rates and thereby shift the long-run aggregate supply curve to the right.

Question

Quizplus · Accepted Answer

Keynesian theory emphasizes the importance of government intervention in the economy to manage fluctuations in aggregate demand. Open market operations, which involve the purchase of government securities by central banks, are one tool that can be used to increase the money supply and stimulate investment spending. This leads to higher bond prices and lower interest rates, which can boost economic activity.

Keynesian Theory