Which of the following would increase the short-run output effects of a monetary expansion?
A)an increase in the marginal propensity to consume
B)an increase in the interest rate sensitivity of investment
C)the IS curve is very flat
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

A) An increase in the marginal propensity to consume increases consumption spending, which increases aggregate demand, leading to an increase in short-run output.
B) An increase in the interest rate sensitivity of investment increases investment spending in response to a decrease in interest rates, leading to an increase in short-run output.
C) If the IS curve is very flat, a given change in interest rates has a large effect on output, leading to an increase in short-run output. 
Since all three factors increase short-run output, the correct answer is D.

Which of the Following Would Increase the Short-Run Output Effects