In the Keynesian system a drop in investment __________ cause the interest rate to __________.
A) will; fall
B) will; rise
C) does not; rise
D) does not necessarily; fall

Question

Quizplus · Accepted Answer

In the Keynesian system, a drop in investment does not necessarily cause the interest rate to fall. This is because in the short run, the central bank can use monetary policy to keep the interest rate constant, even if there is a drop in investment. However, in the long run, a decrease in investment is likely to reduce the demand for loanable funds, which will cause the interest rate to fall.

In the Keynesian System a Drop in Investment __________ Cause