If interest rates are __________ to changes in the money supply and planned investment expenditures are __________ to interest rate changes,then monetary policy will be effective in changing aggregate demand.
A)responsive; sensitive
B)responsive; insensitive
C)not responsive; sensitive
D)not responsive; insensitive
E)none of the above

Question

Quizplus · Accepted Answer

If interest rates are responsive to changes in the money supply, it means that changes in the money supply will have a noticeable impact on interest rates. Additionally, if planned investment expenditures are sensitive to interest rate changes, it means that changes in interest rates will have a noticeable impact on planned investment expenditures. Therefore, if monetary policy can effectively change the money supply, then it will also have a significant impact on aggregate demand through the changes in interest rates and planned investment expenditures.

If Interest Rates Are __________ to Changes in the Money