Which Statement Correctly Describes the Sequence That Explains How an Expansionary

question 100

Multiple Choice

Which statement correctly describes the sequence that explains how an expansionary 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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