Monetary Policy Will Never Be Effective If Interest Rates

(Correct Answer Below)

Monetary Policy Will Never Be Effective If Interest Rates

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Do not respond to a change in the money supply, and investment spending does not respond to changes in the interest rate. *In order to be effective, interest rates need to respond to changes in the money supply and businesses need to respond to interest rates, otherwise AD doesn't change and the economy remains at a point other than full employment.

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