Monetary policy will be effective in changing the gross domestic product of a nation only if _____
A) planned investment expenditures are autonomous.
B) planned investment expenditures are sensitive to interest rates.
C) interest rates are unresponsive to changes in money supply.
D) interest rates are sensitive to changes in the price level.
E) planned investment expenditures are not sensitive to interest rates.

Question

Quizplus · Accepted Answer

Monetary policy is the manipulation of the money supply to achieve macroeconomic goals such as stimulating economic growth and stabilizing prices. One of the tools used in this process is changing interest rates, which affects the cost of borrowing and thus influences spending decisions. If planned investment expenditures are sensitive to interest rates, then changes in interest rates will affect the level of investment and consequently the overall level of economic activity, including GDP. Therefore, monetary policy will be effective in changing GDP if planned investment expenditures are sensitive to interest rates.

Monetary Policy Will Be Effective in Changing the Gross Domestic