The money supply increased, and the AD curve did not shift to the right. This is consistent with the: a) monetarist transmission mechanism when there is a liquidity trap.
b) Keynesian transmission mechanism when there is a liquidity trap.
c) monetarist transmission mechanism when there is interest-insensitive investment.
d) Keynesian transmission mechanism when there is either a liquidity trap or interest-insensitive investment.

b) Keynesian transmission mechanism when there is a liquidity trap.

Explanation:

Since the interest rate is so low, the public will have no incentive to deposit their cash into a bank or invest it in a company. This is a situation where the public will hold to their cash becasue they feel that a negative interest rate is possible. This type of situation could occur if the real interest rate is 0 and the public believes that the possibility of deflation exists and they will be better of by holding to their money.

1. c

2. b

3. a

4. c

5. a

6. b

7. c

8. c

9.b

10. d

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