In the short run in the Keynesian model,an increase in the domestic money supply would cause domestic output to ________ and the domestic real interest rate to ________.
A)rise; rise
B)fall; rise
C)rise; fall
D)fall; fall

Question

Quizplus · Accepted Answer

In the short run in the Keynesian model, an increase in the domestic money supply would cause aggregate demand to shift rightward. This would result in an increase in domestic output. However, the increase in output would lead to an increase in demand for loanable funds, causing an upward pressure on interest rates. Hence, the domestic real interest rate would fall. Therefore, the correct option is C.

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