Investment spending is insensitive to changes in the interest rate and the SRAS curve is upward sloping.According to a monetarist,an increase in the money supply will __________ Real GDP.According to a Keynesian,an increase in the money supply will __________ Real GDP.
A) raise; not change
B) not change; raise
C) lower; lower
D) raise; lower
E) none of the above

Question

Quizplus · Accepted Answer

Monetarists believe that increasing the money supply will raise Real GDP because they see the economy as naturally adjusting to changes in money supply with changes in prices and output. Keynesians, however, might argue that if investment spending is insensitive to changes in interest rates (a liquidity trap scenario), an increase in the money supply will not change Real GDP because the additional money will not stimulate additional investment or consumption.

Investment Spending Is Insensitive to Changes in the Interest Rate