Which Statement Correctly Describes the Sequence That Explains How an Expansionary

question 164

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

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Definitions:

Cost of Merchandise Sold

The total cost incurred by a company to sell goods during a specific period, including purchase and direct labor costs.

Merchandising Business

A type of business that purchases goods wholesale and resells them retail; primarily involved in selling merchandise to consumers.

Revenue Account

A revenue account is an account that records the income earned from the sale of goods or the provision of services before any expenses are deducted.

Sales to Total Assets Ratio

A financial ratio that measures a company's ability to use its assets to generate sales, calculated by dividing sales by total assets.