Keynesian theory:
A) states that open market operations and an increase in the money supply lead people to buy bonds, causing bond prices to rise and interest rates to fall, and increase the investment component of aggregate demand.
B) states that changes in the money supply have no impact on GDP in either the short or long run.
C) is the same as the classical transmission mechanism in all essential elements.
D) states that an increase in the money supply will lower interest rates and thereby shift the long-run aggregate supply curve to the right.

Question

Quizplus · Accepted Answer

Keynesian theory suggests that increasing the money supply can lower interest rates, encouraging investment and increasing aggregate demand, which aligns with choice A.

Keynesian Theory