Question

In the short run in the Keynesian​ model, an increase in the domestic money supply would cause domestic output to​ ________ and the domestic real interest rate to​ ________.

A. Increase; increase.
B. Increase; decrease.
C. Decrease; increase.
D. Decrease; decrease.

Answer 1

An increase in the domestic money supply in the short run in the Keynesian model would cause domestic output to increase and the domestic real interest rate to decrease.

Step-by-step explanation:

In the short run in the Keynesian​ model, an increase in the domestic money supply would cause domestic output to increase and the domestic real interest rate to decrease. This can be explained by the fact that when the money supply increases, households and businesses will have more money to spend and invest, which will lead to a higher level of output. Additionally, the increase in the money supply will lower the real interest rate, making it cheaper for businesses to borrow and invest, thus stimulating economic activity.