The Monetary Transmission Mechanism Provides a Partial Explanation for the Downward

question 105

Multiple Choice

The monetary transmission mechanism provides a partial explanation for the downward slope of the AD curve.For a given vertical M_S curve,the explanation for the negative relationship between the price level and aggregate demand is as follows: A rise in the price level shifts the M_D curve

• A)to the right,the interest rate rises and desired investment expenditure rises.
• B)to the left,the interest rate falls,and desired investment expenditure rises.
• C)to the right,the interest rate rises and desired investment expenditure falls.
• D)to the left,the interest rate rises and desired investment expenditure falls.
• E)to the right,the interest rate falls and desired investment expenditure falls.

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Definitions:

Discount Rate

The interest rate used in discounted cash flow (DCF) analysis to present value future cash flows, or in the context of bond investments, it is the interest rate used by investors to compare different bond issues.

Capital Lease

A lease considered as a purchase of an asset, where the lessee records the leased asset as if it were owned.

Lease Payments

Regular payments made by a lessee to a lessor for the use of an asset, typically defined in a lease agreement.

Implicit Rate

The interest rate implied by the cash flows of a lease, not explicitly stated within the lease agreement.