In order for monetary policy to be effective in changing planned investment spending, what must investment be sensitive to?
A) interest rates
B) gross domestic product
C) consumption
D) the spending multiplier

Question

In order for monetary policy to be effective in changing planned investment spending, what must investment be sensitive to?  
A) interest rates 
B) gross domestic product 
C) consumption 
D) the spending multiplier

Quizplus · Accepted Answer

Monetary policy involves the control of interest rates in order to influence aggregate demand in the economy. Investment spending is sensitive to interest rates, as higher interest rates decrease the profitability of investment and discourage borrowing for investment purposes. Therefore, for monetary policy to be effective in changing planned investment spending, it must influence interest rates.

In Order for Monetary Policy to Be Effective in Changing