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.

Question

Quizplus · Accepted Answer

Monetary policy works by influencing interest rates, which in turn affect investments and spending in the economy. If planned investment expenditures are sensitive to interest rates, then changes in interest rates will lead to changes in investment and overall GDP. If planned investment expenditures are autonomous, meaning they are not influenced by interest rates, then changes in interest rates will not have a significant impact on GDP. Therefore, B is the correct choice. C and D are incorrect because for monetary policy to be effective, interest rates must be responsive to changes in money supply and the price level, respectively.

Monetary Policy Will Be Effective in Changing the Gross Domestic