In the Keynesian transmission mechanism,if investment is completely interest-insensitive,then an increase in the money supply will
A) cause total expenditures and aggregate demand to increase.
B) cause total expenditures and aggregate demand to decrease.
C) have no impact on total expenditures and aggregate demand.
D) cause total expenditures to increase and aggregate demand to decrease.
E) cause total expenditures to decrease and aggregate demand to increase.

Question

Quizplus · Accepted Answer

In the Keynesian transmission mechanism, if investment is completely insensitive to interest rates, then changes in the money supply, which primarily affect the economy through interest rates, would not impact investment levels. Consequently, total expenditures and aggregate demand would remain unchanged because the mechanism through which monetary policy typically influences these variables (i.e., through affecting investment via interest rate changes) would not be operative.

In the Keynesian Transmission Mechanism,if Investment Is Completely Interest-Insensitive,then an Increase