Suppose investment is NOT sensitive to changes in the interest rate.How will changes in the money supply affect aggregate demand?
A) Aggregate demand will increase.
B) Aggregate demand will decrease.
C) Aggregate demand will remain the same.
D) Aggregate demand will become negative.

Question

Suppose investment is NOT sensitive to changes in the interest rate.How will changes in the money supply affect aggregate demand?  
A) Aggregate demand will increase. 
B) Aggregate demand will decrease. 
C) Aggregate demand will remain the same. 
D) Aggregate demand will become negative.

Quizplus · Accepted Answer

If investment is not sensitive to changes in interest rates, then changes in the money supply will not affect interest rates and therefore will not affect investment. However, changes in the money supply can still affect consumption and net exports, but the overall effect on aggregate demand is uncertain. Therefore, aggregate demand is likely to remain the same.

Suppose Investment Is NOT Sensitive to Changes in the Interest