For monetary policy to be effective in changing planned investment spending, _____
A) interest rates must not be responsive to changes in the money supply.
B) interest rates must be sensitive to changes in gross domestic product.
C) investment must be sensitive to changes in interest rates.
D) investment must be sensitive to changes in the price level.
E) interest rates must be sensitive to changes in the price level.

Question

Quizplus · Accepted Answer

For monetary policy to be effective in changing planned investment spending, investment must be sensitive to changes in interest rates. This means that as interest rates decrease, planned investment spending should increase, and vice versa. If investment spending is not sensitive to changes in interest rates, monetary policy will not have a significant impact on the economy.

For Monetary Policy to Be Effective in Changing Planned Investment