Which Statement Correctly Describes the Sequence That Explains How a Contractionary

question 245

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; 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:

Appellate Court

A court that has the authority to review and decide on the appeals of decisions made by lower courts, ensuring the correct application of law.

Trial Court

A court of law where cases are first tried, evidence is presented, and judgments are made.

Jury

A group of people legally selected and sworn to inquire into any matter of fact and to give their verdict according to the evidence presented to them.

Standing

The legal right of a party to bring a lawsuit by demonstrating to the court sufficient connection to and harm from the law or action challenged (i.e., the plaintiff must demonstrate that he or she is harmed or will be harmed). Otherwise, the court will dismiss the case, ruling that the plaintiff “lacks standing” to bring the suit.