Which scenario best explains the Keynesian transmission mechanism when the money supply increases while the money market is in a liquidity trap?
A) The interest rate and investment are not affected; there is no shift in the AD curve.
B) The interest rate falls,investment rises,total expenditures rise,and the AD curve shifts rightward.
C) The interest rate falls,investment falls instead of rising,and the AD curve ends up shifting leftward.
D) The interest rate falls,but investment does not respond; there is no change in total expenditures and no shift in the AD curve.

Question

Quizplus · Accepted Answer

In a liquidity trap, increasing the money supply does not affect interest rates or investment because interest rates are already at or near zero and cannot go lower, leading to no shift in the aggregate demand (AD) curve.

Which Scenario Best Explains the Keynesian Transmission Mechanism When the Money