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The effectiveness of monetary policy depends on how easy it is for changes in the money supply to change interest rates.
10. The effectiveness of monetary policy depends on how easy it is for changes in the money supply to change interest rates. By changing interest rates, monetary policy affects investment spending and the aggregate demand curve. The economies of Albernia and Brittania have very different money demand curves, as shown in the accompanying diagram. In which economy will changes in the money supply be a more effective policy tool? Why? 11. During the Great Depression, businesspeople in the United States were very pessimistic about the future of economic growth and reluctant to increase investment spending even when interest rates fell. How did this limit the potential for monetary policy to help alleviate the Depression?
