Some economists argue that the animal spirits of investors are so important in determining the level of

Question:

Some economists argue that the “animal spirits” of investors are so important in determining the level of investment in the economy that interest rates do not matter at all. Suppose that this were true—that investment in no way depends on interest rates.

a. How would Figure 27.1 be different?

b. What would happen to the level of planned aggregate expenditures if the interest rate changed?

c. What would be different about the relative effectiveness of monetary and fiscal policy?

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