Monetary policy will be ineffective if
A)The demand for money is very sensitive to changes in the interest rate,but the investment demand is not.
B)The demand for money and investment demand are both very sensitive to changes n the interest rate.
C)Interest rates are sensitive to the quantity of money supplied,and investment spending is sensitive to changes in the interest rate.
D)Investors have favorable expectations for future sales.

Question

Quizplus · Accepted Answer

If the demand for money is very sensitive to changes in the interest rate but the investment demand is not, then changes in the interest rate will mainly affect the demand for money rather than investment spending. Therefore, monetary policy may be ineffective in stimulating economic activity through investment.

Monetary Policy Will Be Ineffective If