QUESTION 1 s da montany peliy ae ret at oe proda b te fscal polcy affects AD thr

Question

QUESTION 1 s da montany peliy ae ret at oe proda b te fscal polcy affects AD through interest rate, since people prefer to increase money demand by boldng hquid asset, like cash, whan the interest rata is lom O·the monetary policy affects AD through merest rate unce people prefer to increase money demand by holding liquid asset d All ofthe above are correct far to decrease money demand by holding less liquid asset, like bond, whens the interest rate is low by is like cash, when the interest rate is low

Explanation / Answer

1. C. When interest rate is low, people tend to demand more money.

2. D. A fall in the price level, decreases demand for money and interest rates fall and investment increases.

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