According to Keynesians, for monetary policy to have a stimulative effect on GDP, a/an:
A) increase in the money supply is needed which lowers the interest rate in order to stimulate higher levels of investment.
B) increase in the money supply is needed which lowers the interest rate in order to lower levels of investment.
C) decrease in the money supply is needed which lowers the interest rate in order to stimulate higher levels of investment.
D) decrease in the money supply is needed which causes the interest rate to rise in order to stimulate higher levels of investment.

Question

Quizplus · Accepted Answer

According to Keynesians, an increase in the money supply is needed to lower the interest rate, which in turn stimulates higher levels of investment and consumption spending, leading to an increase in GDP. This is because lower interest rates make it cheaper for firms to borrow to invest in capital and expand their business, which creates jobs and boosts economic activity. Therefore, A is the correct choice. Choices B, C, and D are not consistent with the Keynesian view of the relationship between monetary policy, interest rates, and GDP.

According to Keynesians, for Monetary Policy to Have a Stimulative