Consider a fall in the money supply and the impact that this will have on equilibrium in the goods market via both transmission mechanisms. Which of the following would lead to the biggest change in national income following this fall in the money supply? (a) An investment demand curve that is unresponsive to interest rate changes and an elastic liquidity preference curve. (b) An elastic investment demand curve and a high level of responsiveness from export and import demand following a change in the exchange rate. (c) A lack of responsiveness of the exchange rate to interest rate changes and an endogenous money supply. (d) A low level of responsiveness from export and import demand to a change in interest rates and an exogenous money supply curve.
Consider a fall in the money supply and the impact that this will have on equilibrium in the goods market via both transmission mechanisms. Which of the following would lead to the biggest change in
(a) An investment
(b) An elastic investment demand curve and a high level of responsiveness from export and import demand following a change in the exchange rate.
(c) A lack of responsiveness of the exchange rate to interest rate changes and an endogenous money supply.
(d) A low level of responsiveness from export and import demand to a change in interest rates and an exogenous money supply curve.
Step by step
Solved in 3 steps
