Final answer:
An expansionary monetary policy is less effective for raising GDP when investment is not sensitive to changes in interest rates because it relies on increased borrowing and investment that may not occur under these conditions, unlike expansionary fiscal policy, which directly impacts aggregate demand.
Step-by-step explanation:
When planned investment is not sensitive to changes in interest rate, an expansionary monetary policy is less effective in raising the level of GDP. An expansionary monetary policy typically works by lowering interest rates, which encourages more borrowing and investing.
However, if businesses are not responding to these lower interest rates with increased investment, the policy does not stimulate aggregate demand as effectively. This scenario is sometimes described as 'pushing on a string' because the central bank is attempting to promote economic activity through lower interest rates, but it does not lead to a corresponding increase in investment spending.
By contrast, expansionary fiscal policy, which involves increasing government spending or reducing taxes to stimulate the economy, can directly increase aggregate demand regardless of the interest rate sensitivity of investment. Therefore, when investment is inelastic to interest rates, fiscal policy may be a more effective tool for boosting GDP.