Which Statement Correctly Describes the Sequence That Explains How a Contractionary

question 262

Multiple Choice

Which statement correctly describes the sequence that explains how a contractionary monetary policy impacts an economy?

• A) The policy lowers interest rates; lower interest rates increase investment; higher investment increases aggregate demand, which impacts output and the price level.
• B) The policy lowers interest rates; lower interest rates discourage investment; lower investment decreases aggregate demand, which impacts output and the price level.
• C) The policy raises interest rates; higher interest rates reduce spending; lower spending reduces aggregate demand, which impacts output and the price level.
• D) The policy raises interest rates; higher interest rates attract more savings; higher savings fuels investment growth which raises aggregate demand, which impacts output and the price level.

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Definitions:

Profit Potential

The capacity for future financial returns or earnings.

Market Entry

The strategies or methodologies used by a company to start selling its products or services in a specific market or geographic area.

Direct Investment

Investment in a business or real estate venture in a foreign country in a way that grants the investor control or significant influence over the venture.

Internationalization

The process of designing products, services, and strategies in a way that they can be easily adapted to various international markets.