Which of the Following Best Describes the Cause-Effect Chain of a Restrictive

question 204

Multiple Choice

Which of the following best describes the cause-effect chain of a restrictive monetary policy?

• A) A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.
• B) A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP.
• C) An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP.
• D) An increase in the money supply will lower the interest rate, decrease investment spending, and increase aggregate demand and GDP.

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Definitions:

CPI

A tool called the Consumer Price Index offers insight into the weighted average changes in prices for a selection of consumer-related goods and services, with a focus on sectors like transportation, food, and medical care.

Real Interest Rate

The interest rate adjusted for inflation, reflecting the true cost of borrowing and the real yield to investors.

Real Interest Rate

The interest rate adjusted for inflation, representing the true cost of borrowing and the real yield to savers.

Nominal Interest Rate

The interest rate as stated without adjustment for inflation, representing the actual percentage amount charged for borrowing money.