Monetary policy has the largest impact when the money demand curve is ________ and investment demand is ________.
A)horizontal;elastic
B)downward-sloping;elastic
C)horizontal;inelastic
D)downward-sloping;inelastic

Question

Quizplus · Accepted Answer

Monetary policy has the largest impact when the money demand curve is downward-sloping, indicating that changes in interest rates will lead to significant changes in the quantity of money demanded, and when investment demand is elastic, meaning that businesses and consumers are responsive to changes in interest rates for their investment decisions. This combination maximizes the effect of monetary policy on the economy by influencing both the supply of money and the demand for investment.

Monetary Policy Has the Largest Impact When the Money Demand