In the Keynesian model in the short run,an increase in the money supply will cause
A)an increase in output and a decrease in the real interest rate.
B)a decrease in the real interest rate but no change in output.
C)an increase in the real interest rate and an increase in output.
D)no change in either the real interest rate or output.

Question

Quizplus · Accepted Answer

According to the Keynesian model, an increase in the money supply will lead to an increase in aggregate demand. This, in turn, will lead to an increase in output. As output increases, firms will demand more funds for investment, which will increase the demand for loanable funds and lower the real interest rate. Therefore, an increase in the money supply will cause an increase in output and a decrease in the real interest rate in the short run, making choice A the correct answer.

In the Keynesian Model in the Short Run,an Increase in the Money