Which One of the Following Statements Best Describes the Monetary

question 10

Multiple Choice

Which one of the following statements best describes the monetary transmission mechanism?

• A)An increase in personal consumption leads to an upward shift in the AE curve and thereby increases real GDP.
• B)An increase in government spending causes the AE curve to shift upwards,leading to a higher GDP.
• C)A decrease in imports causes the AE curve to shift upwards,leading to a higher interest rate.
• D)An increase in the money supply leads to a lower interest rate,higher desired investment,an upward shift in the AE curve and a higher GDP.
• E)A decrease in the money supply leads to a lower interest rate,higher desired investment,an upward shift in the AE curve and a higher GDP.

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Definitions:

Government Borrowing

The process by which governments finance their expenditure by accruing debt through issuing securities like government bonds and bills.

Budget Balance

The financial position where total revenues are equal to total expenditures within a given period, resulting in neither a surplus nor a deficit.

Government Debt

The total amount of money that a government owes to creditors, which can result from borrowing to cover its expenses.

U.S. Government Bond

A debt security issued by the United States government to support government spending.